Market awakens from seasonal slumber
By James Massina
After a month of declining US futures, the market finally awoke on the last day of June sparked by the USDA’s acreage and stocks report. The published numbers surprised most in the market as they came in lower than expectations. Planted acres for the three key commodities were all bullish with corn and beans leading the charge and the wheat numbers also generating a price rise. This surprise was enough for all three markets to finish notably higher on the 30th of June all shrugging off the weight of bearish global stock levels. The strength in the rally was no doubt underpinned by the market structure with large managed money short positions in both the corn and wheat pits. The corn short heading into the report was just shy of its biggest in the last ten years.
Globally the SNDs remain a challenge with reports of the crop size out of Russia swinging between a 75Mmt reported one day then seemingly 80Mmt the next. Harvest reports from the US are indicating better than expected yield, quality and test weights and notwithstanding the acreage report, has certainly weighed on markets there. Global trade flows for wheat have been solid without being striking with the usual tenders and price discovery taking place. The area of most interest has been the confirmation that China is back in buying US corn with much speculation as to how many cargos have traded. Needless to say, the US has an abundance of corn to shift with the ethanol demand there being devastated in recent months.
At home, all the talk has been around how big this crop going to be. Until recently, Western Australia was crying out for a drink with a similar story playing out in Queensland. Western Australia generally got what they were looking for with rainfall events through that state over-performing versus forecasts whilst Queensland patiently waits for more. Analysts are looking for an analogue year to forecast the crop size and understandably many looking back at 2016. Interestingly, the report published by ABAREs in June of that year had East Coast wheat production at 11.6Mmt whereas last month they printed a 13.5Mmt for the same region. The total wheat production for Australia in June 2016 was 25.4Mmt versus this year at 26.7Mmt, primarily reflecting the poorer conditions being experienced in Western Australia today.
Cash markets have generally been quiet, certainly in the new crop slot ostensibly due to the continued demand uncertainty. Domestic consumers understandably wary of what global macro-economic factors may be at play six months from now and have largely been absent from that market. Volume has been transacting in the January forward market however it has largely been populated by the trade. Aside from a recent uptick, old crop wheat markets have been under pressure as the spread to barley widened so much so that it had been excluded from most rations. The inverse from old to new crop has narrowed significantly from its peak and it feels today as though that spread will erode sooner than many may have originally thought.
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