Markets react as USDA reduces production estimates
By Matt Wallis
Friday night saw the release of the USDA’s January World Agricultural Supply and Demand Estimates. Wheat futures have firmed on the back of this reports release with world wheat stocks meeting the markets expectations, declining by 1.42mmt. Australian wheat production was reduced 0.5mmt to 15.6mmt and exports down 0.2mmt to 8.2mmt. Although the local estimates are much lower, it is more difficult to predict domestic production this year as more grain has been stored on farm in South Australia and on the East Coast than anecdotally suggests while the failed acres and those cut to hay remain anyone’s guess.
Production was also reduced in Russia by 1mmt however this was countered by an increase in EU production by 0.5mmt to 154mmt. US winter wheat crop planted acres were projected the second lowest on record at 30.8 million acres as farmers switch into higher grossing crops such as soybeans.
Ending stocks remain plentiful on the global scale. Excluding China, the January report predicts 140.62mmt of global carryout, 31.63mmt of which is tied up with the major four exporting countries which if realized would be the lowest carryout from the four major exporting countries in the previous three seasons.
Currently the CBOT March 2020 contract is trading at 565 USc/bu or $300 AUD/t which is near the contract highs achieved in June 2019. This is on par with the high for the new year and above the 2020 low of 545 USc/bu. CBOT Dec 2020 currently sits at 582 USc/bu or $308 AUD/t.
Domestic wheat markets have welcomed the new year. Griffith market zone is up $10 to $380 delivered Feb/Mar, Darling and Western Downs up $25 to $460 delivered Feb/Mar and Melbourne/Geelong zone up $10 to $365 delivered Feb/Mar. Over in the west and APW markets are up $10-$18 over the same period across all port zones. APW1 in Kwinana zone is currently trading as high as $370 free in store, a far cry from the $330 FIS number which was heavily sold pre harvest.
Barley has had a more ferocious start to the new year. A lack of boats and trains moving in January has seen a strong inverse appear in the market. So far this year, Barley is up $15-$20 in the Port Kembla, Melbourne/Geelong zone, Port Adelaide, Wallaroo and Port Lincoln zones. Delivered homes have followed these moves up $15-$20 in most cases.
To note, as these markets move higher the trade is becoming much thinner. Presumably this is a function of either the stocks available running dry or otherwise, farmers have taken care of their immediate cash flow needs and happy to sit back, speculate and watch where this market goes.
Now being the middle of January and rainfall almost non-existent, we are facing the very real prospect of our lowest sorghum plant in over 40 years. According to ABARES data, the smallest sorghum crop was 546kmt achieved in 1992/93. Currently even the most optimistic forecaster struggles to justify a 300kmt production year for 2020. Time is of the essence for rain here with the window now shut on the NNSW and SQLD plant.
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