USDA fails to fire the market

Not many fireworks from the latest December USDA world supply/demand report that was released over the weekend. Corn was left near unchanged/slightly higher, US wheat ending stocks were upped slightly and domestic carryover projection for soybeans was lowered. So basically it was positive for oilseeds, neutral for corn and slightly negative for wheat.

Bullish markets need to be fed a constant stream of bullish news.
And while US corn ending stocks for the current marketing year are projected to be very tight, the lack of fresh bullish news coming through could generate a short-term weaker tone. Nonetheless, year-end liquidation pressures may gain some traction early before the Jan USDA report and 2011 acreage battle that lies ahead provides market support in the longer-term outlook. Still while there may be a slightly short-term negative tone for corn, US corn continues to see the tightest stocks situation since the 1995/96!

Domestic US soybean ending stocks fall to 165 million bu, due exclusively to increase demand from China. No change to South American crop conditions and Chinese demand remain the key supportive themes.

USDA boosted its estimate of world wheat carryout by 4 mmt to 176.72 mmt (Australia up 1.5mmt to 25.5mmt). Much of the gains were attributed to production revisions higher for both Canada and Australia, though as we know both countries have experienced significant quality downgrades, and thus the high protein market should be well supported until the trade gets a handle on northern hemisphere crop conditions after dormancy.

So while production was raised the quality issue remains a supportive element for wheat markets. Also whispers out from China is that 19% of winter wheat area has been impacted by higher temperatures and limited rain in November (can China keep producing record wheat crops..?). Also another big issue to look for in the next January report is corn/soybean production estimates, with La Nina presence starting to impact on yields in Brazil and Argentina.

Rain delays in the cricket and harvest!

The stark contrast between east and west coast continues unabated, with clear skies and warmer temperatures in the west for the majority of harvest (albeit perfect weather for the smallest wheat crop in 44 years!). While in the east coast milder temperatures and persistent rain has delayed harvest and frustrated farmers with the biggest crop in decades flooded and unaccessible in paddocks.

Many regions received well in excess of their monthly average in the first few days of December, while another front is moving through South Australia today and into the eastern states tomorrow through to Thursday which is expected to bring large totals to the south east of the country (at least one good thing can come of it, it looks like it may be a washout in the cricket in Adelaide and we may be able to salvage a draw!). For some regions this weeks rainfall event could be the straw that breaks the camel back; as last weeks heavy storms knocked over crops and flooded paddocks.

There are some extravagant claims out there regarding the extent of the weather damage along the east coast. Analysts from the States are reporting that as much as 90% of Australia’s crop will be downgraded to feed quality. Now this is just absurd, either they should check the reliability of their sources or they just want to keep feeding the bulls..!

Although with all rainy harvest it is an evolving situation we can’t get a firm idea on quality until harvest can restart. It is estimated that of the 7-8 mmt of wheat that has been stripped, 1 – 1.5 mmt would be classified as weather damaged. And if this approaching rain front intensifies and dumps the 35 – 75 mm that is projected, expect another 8-10 mmt downgraded to weather damaged (and that is not factoring in abandon paddocks)

In WA the harvest is drawing to a close, the current east coast delays is proving attractive pricing opportunities, with ANW1 up $70/mt, H1 $71 and APW $45 over the last couple of weeks. There is also talk that overseas buyers may relook at shipping from WA as the tonnage and potentially high protein wheat isn’t at port in eastern Australia. This may potentially add further upside to spot prices as traders quickly scramble for last minute tonnage.