US wheat stocks to remain high

18.01.2017

A range of eagerly anticipated USDA reports were released at the end of last week, covering US grains stocks, winter wheat plantings, production estimates for corn and soybeans and the normal monthly World Agricultural Supply and Demand Estimates Report.

In the case of wheat, the market held some strength going into the report, backed by a view that winter wheat acreage numbers would come in low. In the end that’s what happened, with winter plantings well below expectations, at their lowest level in 108 years.

However, balancing factors included a drop in estimated usage for the current year and a corresponding lift in US ending stocks from the December estimate.

US wheat stocks are to remain at very high levels, and any reduction in acreage will only prevent stocks from rising further in 2017-18, not bite into existing stocks.

The other aspect is the current tightness in supply, and reduction in acreage, is for the US Hard Red Winter wheat crop. That has boosted the Kansas City futures contract, which flows through to the stronger premiums being paid globally (and here in Australia) for higher protein wheats. But it has done little to provide support for Soft Red Winter wheat prices that back the main CBOT wheat futures contract, and drives our prices for APW, ASW and AGP grades of wheat.

Kansas City wheat futures are now at their highest levels since late June 2016. In contrast, CBOT futures are barely back to levels last seen in early November. The US numbers were also mirrored in global figures, with estimates for 2016-17 global ending stocks lifting another 1.15 million tonnes to 253.29 mill tonnes, up 12.8 mill tonnes on last year.

The USDA has left the Australia crop estimate at 33 mill tonnes. That is easily a new record, and seems to be backed by the ongoing anecdotal stories on extraordinary yields being achieved.

If true, we can expect an upgrade of the Australian estimate at some stage. Although our system’s lack of information will make it near impossible to make an accurate assessment of what has actually been produced.

That takes us to the current market, which in Australia seems to be going nowhere, despite some rallies in the US futures. There’s a gap of $29 per tonne between average port zone values in the Newcastle zone and Port Lincoln zone in South Australia. Some zones are facing their lowest prices for multiple years for APW wheat, while prices for H1 and APH2 are at seasonal highs.

In all port zones the discount to APW is large, and for ASW, have been in excess of $25 per tonne since the New Year.

Both the Australian and world markets are awash with lower protein wheat.


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