Yesterday’s USDA report gave contrasting views on global grain production, as perceived crop increases within the US (mainly on revised higher acreage figures), were offset by lower crop production for foreign producers. Global stocks for wheat and corn were reduced by 5mln t and 3mln t respectively, although some of the crop numbers used by the USDA still gave plenty of scope for further downward revisions against local estimates, especially in the EU and China. Due to lower foreign production, export projections for the US were increased, promoting the impression that the US is open for business.
European prices have followed the US markets, initially lower on the week, prior to the bounce following the release of the USDA data. Concerns are still present over continued dryness in parts of the EU, which led to Strategie Grains reducing its 2018-19 soft wheat production by 7.5mln t to 132.4mln t, with the biggest reductions being forecast in France and Germany. Adding to the positive sentiment was news today that the Russian agriculture ministry has further reduced its estimate of the 2018-19 wheat crop to 64.4mln t. Despite the forecast, Russian wheat remains the price benchmark that other origins need to follow for the moment, as seen recently when Russia secured all the Egyptian 175,000t tender.
The UK old crop market is now purely regional. The North West is still attracting buying interest, whereas the North East, Midlands, East Anglia and Southern regions have more sellers looking for buyers. New crop values remain attractive for growers and maize imports are certainly now a factor to consider for some regions. As the harvest nears, and traders gain the first credible information on UK yield and quality, better market assessment can be made where the UK lies. Until then, we expect markets to follow other exchanges whilst sterling bounces around on the latest Brexit news. However, it is important to recognise that the UK crop may well be below 14 mln t and that we will be a sizeable importer of feed grains in 2018/19.
In summary, global stocks down, US stocks up – how do the markets react? The USDA firmly pinned its thoughts on the market, expecting the world, at some time, to come knocking at the US’s door. While this may be the reality, it may not be a feature until early 2019, as currently the erosion of price spreads between the US, the EU and Russia isn’t producing any significant improvement in US export sales and shipments. In addition, the likelihood of increased corn and soy yields in next month’s reports could increase US supplies further and, with the ongoing trade dispute with China, it may be of interest where the USDA believe all the supplies will go!