Markets react as USDA reduces production estimates

Now being the middle of January and rainfall almost non-existent, Australia is facing the very real prospect of the lowest sorghum plant in more than 40 years.
Now being the middle of January and rainfall almost non-existent, Australia is facing the very real prospect of the lowest sorghum plant in more than 40 years.

THE US Department of Agriculture's January World Agricultural Supply and Demand Estimates were released last Friday.

Wheat futures have firmed on the back of this reports release, with world wheat stocks meeting the markets expectations, declining by 1.42 million tonnes.

Australian wheat production was reduced 0.5 million tonnes to 15.6 million tonnes and exports down 0.2 million tonnes to 8.2 million tonnes.

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 SA 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 one million tonnes, however this was countered by an increase in EU production by 0.5 million tonnes to 154 million tonnes.

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 140.62 million tonnes of global carryout, 31.63 million tonnes of which is tied up with the major four exporting countries, which if realised, would be the lowest carryout from the four major exporting countries in the previous three seasons.

Currently the Chicago Board of Trade (CBOT) March 2020 contract is trading at US565 cents a bushel or $300 a tonne, 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 US545c/bu. CBOT Dec 2020 currently sits at US582c/bu or $308/t.

Domestic wheat markets have welcomed the new year.

Griffith market zone is up $10/t to $380/t delivered February/March, Darling and Western Downs up $25/t to $460/t delivered Feb/Mar and Melbourne/Geelong zone up $10/t to $365/t delivered February/March.

Over in the west and Australian Premium White markets are up $10/t to $18/t over the same period across all port zones.

Australian Premium White (APW1) in Kwinana zone is currently trading as high as $370/t free in store, a far cry from the $330/t 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/t to $20/t in the Port Kembla, Melbourne/Geelong zone, Port Adelaide, Wallaroo and Port Lincoln zones. Delivered homes have followed these moves up $15/t to $20/t 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 are 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 more than 40 years.

According to Australian Bureau of Agricultural and Resource Economics and Sciences data, the smallest sorghum crop was 546,000 tonnes achieved in 1992/93.

Currently even the most optimistic forecaster struggles to justify a 300,000 tonne production year for 2020.

Time is of the essence for rain here, with the window now shut on the northern NSW and southern Queensland plant.

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