China is the great unknown in the global wheat and corn market

By Angus Groves

Rainfalls of 15-35mm across the West Australian grain belt last week helped solidify the ABARES Australian wheat crop forecast of 26.6 million tonnes last week. This estimate from the national forecaster points to above average yield prospects for most of Victoria and New South Wales, with conditions across the rest of the states considered variable but ranging from below average to above average. 

However, this ABARES forecast came before the rain hit the ground across Western Australia and although this crop was lagging, it certainly isn’t too late to make up yield with continued rainfall through winter and spring. Fingers crossed it keeps coming for all our friends in the west. On the marketing front we have seen some interesting developments as the Northern Hemisphere harvest becomes well advanced. Crop estimates continue to be revised downwards for the Russian wheat crop, with some private analysts calling it a 76.5 million tonnes, which is a far cry from the 80 million plus crop we had before the headers went in. This, in addition to the Russian grower not comfortable selling their wheat crop, is pushing this market consistently higher as we move through the harvest. 

While the story right across the US are the substantial purchases made by China in recent weeks. You name it – China has bought it from America lately. Corn was the easiest to confirm, and certainly the largest total purchase with between 3-4 million tonnes trading out of the US, destined for Chinese ports. 

The next one was soybeans, and it was hard to pinpoint exactly how many beans traded from the US to China during the past few weeks. However, we do know that Brazil is just about all out of beans and the US is the last place China can access them. One to watch for Australian canola growers, as soybean rallies generally translate to higher Aussie prices for our canola.

And then finally there were the Chinese purchases of US wheat, which sparked the wheat market to life mid-last week. It seems reasonable that China took 2 cargoes of US Soft Red Winter (SRW) wheat, and with that crop being the smaller of the two US wheat crops it doesn’t take much to alter the balance sheet here and really spark things into life. Who knows, perhaps China are fair dinkum in ratifying their trade deal with the US after all. 

This translated to a significant mid-year rally here in Australia, which triggered a round of farmer selling on wheat. With crops looking fantastic, and prices above the 300-port level, many were comfortable selling some more wheat, or perhaps making their first sale for the year. As with any forward sales you must make sales based on a profitable price and taking your production risk into account. If any of these two factors don’t line up to your budget, it is best to leave the forward selling until they do.