On Jan. 12, US Agency released its annual crop production report.
Highlights included:
– U.S. corn growers produced 14.2 billion bushels in 2020, up 4% from 2019.
– Corn yield in the U.S. was estimated at 172.0 bu. per acre, 4.5 bu. above the 2019 yield.
– Soybean production for 2020 totaled 4.14 billion bushels, up 16% from 2019.
– The average soybean yield was estimated at 50.2 bu. per acre, 2.8 bushels above 2019.
– In the Grain Stocks report, corn stored as of Dec. 1, 2020 was estimated to be down fractionally from Dec. 1, 2019.
– Soybean stocks were down 10% from a year earlier.
– Corn stored in all positions totaled 11.3 billion bushels, while soybeans totaled 2.93 billion bushels.
Global wheat ending stocks estimate, was lower than expected, even if we still have seen record global ending stocks at 4% more than last year and 13% more than the 5-year average.
In fact the wheat picture at this point of the year is relegated mainly to tinkering around the edges.
Global production for this season was reduced by just a touch over 1mmt.
In terms of increases, just for exemple, Russia had its production ramped up to 85.3mmt, now a record production year.
This was offset by drops in China (-1.75mmt) and Argentina (-0.5mmt).
Australia was maintained at 30mmt, which means that future updates will see an upgrade of between 1-2mmt.
This will nullify any bullish data in production.
According to US Ag, Chinese domestic wheat consumption is expected to reach a record 135 MMT in 2020/21, up 11% from the 5- year average on increased feed use due to higher domestic corn prices.
However, US Ag still expects Chinese ending stocks will reach a record 160 MMT in 2020/21, up 5% from last year, if realized.
It’s true, global ending stocks were dropped to 313mmt, with a drop of 3mmt.
But this remains a record high level of reserves, albeit with 60% of all wheat stocks held in two countries (India & China).
So overall the picture isn’t necessarily bullish for wheat prices.
That’s when you look at wheat in isolation.
If we want to thank anything for the rally, then thank corn.
In fact, recent months, the wheat market has primarily been driven by corn.
The corn market was driven by large drops in US production, with 8mmt dropped since last month.
But, the reality is that this remains to pretty high production levels, and remain 14mmt higher than the previous year.
However, the increase in Chinese imports has seen forecasts rise to 17.5mmt.
This has resulted in ending stocks dropping to the lowest level since 2013.
And so, for exeple, we have seen, Ukraine corn export prices were at a 4.5 year high due to tight domestic supplies and lowered crop prospects in the U.S. and South America.
Even if, a spike in purchasing prices by over $15 in a week forced farmers to enter the market after the holidays, but there are still very few corn offers.
The need to cover contracts with January shipment forced exporters to raise their CPT-port bids further.
As corn prices rise, we may start to see some demand destruction.
However, prices are still set at reasonable levels for the coming months, even if the surge in agricultural raw materials is of particular concern to breeders who are seeing their production costs soar, in particular in the poultry sector.
In the meantime, others factor added.
Russia had further increase its 2020/21 wheat export tax, supporting all wheat futures prices week-over-week.
Russian AgMin, in fact, officially set grains exports duty as explane below:
From 15/02/21, intra-quota rates will remain unchanged.
For wheat €25/tn; for rye, barley, corn – 0%.
From 01/03/2021 wheat €50;
From 15/03/21 corn – €25/tn, barley – €10/tn, rye – 0%.
In this context, CBOT soft red winter (SRW) futures jumped 37 cents to end at $6.75/bu.
KCBT hard red winter (HRW) futures added 48 cents to close at $6.43/bu.
MGE hard red spring (HRS) futures gained 35 cents to end at $6.43/bu.
CBOT corn futures jumped 35 cents to close at $5.31/bu.
CBOT March soybean futures added 42 cents to end at $14.2/bu.
The Baltic Dry Index (BDI), an assessment of the average cost to ship raw materials like grains, coal and iron ore, increased 12% on the week to end at 1,792.
The U.S. Dollar Index fell from last week to close at 90.76.
Black Sea Wheat has come in far above expectations nearing $290 Fob.
More Australian origination strength emerged too, with ongoing coverage a priority as stems tick forward.
So, we must note that this moviments doesn’t due only to January Grain Stocks data report, where, as have just seen, US Ag reduced its total 2020/21 global wheat ending stocks estimate by 3.30 MMT to 313 MMT, even if these were below industry expectations.
In addiction, we know that according to US Agency, total U.S. winter wheat planted area for harvest in 2021 is expected to reach 32.0 million acres, up 5% from last year on strong prices during fall planting.
HRW acreage is pegged at 22.3 million acres, up slightly from last year.
The SRW planted area forecast hit 6.23 million acres, up 12% from the year prior. Soft white (SW) planted area is up slightly from 2020 at 3.48 million acres.
And all the world wheat crop in 2020/21 is forecast to be the largest on record, even though difficulties in Argentina, due to prolonged drought, were noted, with yields at multi-season lows in Cordoba and Santa Fe provinces.
US weekly commercial sales were of 222,000 metric tons (MT) for delivery in 2020/21, down 19% from last week’s 275,000 MT and slightly less than trade expectations for 250,000 MT to 500,000 MT.
Year-to-date, US commercial sales now total 21.1 million metric tons (MMT), 8% ahead of last year’s pace.
The Great Lakes – St. Lawrence Seaway System it closed from early January and remain so to mid-March 2021, but US Agency forecasts total U.S. wheat exports will reach 26.8 MMT in 2020/21, 2% ahead of last year, if realized.
France agency now estimates total French soft (non-durum) wheat exports outside the European Union will fall to 7.27 MMT in 2020/21, down 47% from last year on significantly reduced production.
As of Jan. 15, Ukrainian wheat exports total 12.7 MMT, down 17% from this time last year on significantly lower production.
The 2020 Ukrainian wheat harvest fell 13% on the year to 25.5 MMT on substantial dryness through the growing season.
US Ag now expects Russia will export 39.0 MMT of wheat in 2020/21, down 1.0 MMT from its December estimate, but 13% more than last year, if realized.
So, in this situation, only the stocks could be used (STU) ratio as a crucial barometer which to provide an insight into the relationship between supply and demand.
The STU ratio can is displayed as either a % or a number of days.
The higher the ratio, the better supplied the world is.
As an example, in the chart below, wheat is at 41.5%.
This means that the world has enough wheat in stores to meet 41.5% of a year’s demand in theory.
Well, but then what is the news?
The major change is based on the acceleration of demand with the global Covid-19 pandemic which now encourages major importing countries to secure food stocks at home rather than leaving them at sellers on the other side of the planet the case of China.
And this upward spiral is also accentuated by the desire of the major exporting countries to protect their own domestic markets from the galloping inflation of food prices, recalling the case of Russia, the leading exporter world of wheat, that increased the tax on the export of wheat from March 15, to 45€ after the first tax of 25€ will implemented from February 15.
