Wheat Eyes Corn, Soybean Stocks
Wheat markets made it through the middle of November with continued bullish undertones of demand, but farmer and speculator selling led to the decline on the futures board. On Tuesday, November 10th, the USDA published their monthly WASDE update, which shocked the market with an bullishly unexpected downgrade of both U.S. corn and soybean ending stocks. With the carryout now sitting at the lowest they’ve been 7 years, prices for corn and soybeans have rallied, potentially buying more acres for Plant 2021.
That said, after last year’s fall led to way less winter wheat acres being planted and thus combined in both Europe and the United States, production is expected to rebound for the 2021/22 crop year. For the U.S, the USDA is estimating that total wheat acres will expand year-over-year by X% to 46.7M. In Europe, Strategie Grains is estimating that acreage will climb by 9%. Thinking more current though, because of the smaller 2020/21 crop, European exports are tracking 24% behind the same week in the 2019/20 crop year, with just 7.84 MMT sailed.
That said, this is a better pace than what the USDA said in their November WASDE, as they raised their export forecast to 26 MMT. This is up 500,000 MT from the October WASDE report, but still 12.4 MMT below what sailed in 2019/20. Russia wheat exports were also raised by 500,000 MT, a function of production being raised by the same amount to 83.5 MMT, their second-largest crop ever. There was some bullish buzz last week that Russia may start to limit their wheat exports starting in February 2021, however, the quota of 15 MMT between then and the end of their marketing year in June, was way more than what the market expected.
As I mentioned last week in the Wheat Market Insider column, the fresh supply from the southern hemisphere coming to market, namely Australia and Argentina, is weighing the most on wheat markets right now. However, for the latter, I’ve said that the size of the Argentine wheat harvest continues fall, which is somewhat bullish. While the USDA dropped their wheat harvest estimate down to 18 MMT, the Rosario Grains Exchange said yesterday that they’re not expecting a 16.7 MMT crop. This is a drop of 300,000 MT from their previous estimate and 100,000 MT lower than the 16.8 MMT estimated by the Buenos Aires Grain Exchange earlier this week.
On the domestic side of things, we saw the USDA raise ending stocks for both American HRS wheat and durum inventories, by 4M bushels each (or about 110,000 MT if converting bushels into metric tonnes). This isn’t exactly bullish for Canadian wheat prices as it indicates that there’s a little more high protein wheat to go around, be it for domestic or international buyers. That said, Canadian wheat exports continue to cruise with 1.27 MMT of durum and 5.68 MMT of non-durum wheat exported through Week 14. Combined, that’s nearly 7 MMT of Canadian wheat exported, a record for this time of year, and 18% ahead of last year’s pace.
Now, with COVID-19 vaccines starting to show promise, it’s expected that they’ll be available to the public sometime in the next 6 – 12 months. Thus, I’m cautious of the likely slowdown of buying by wheat importers who’ve been COVID-buying (what I call this extra, “just-in-case” demand). However, the bigger story to watch is the weather in South America, as with La Nina keeping things dry in Brazil and Argentina, it will weigh on corn and soybean production there. If limited moisture continues to fall, then the corn and soybean balance sheets will get even tighter, thus driving prices for those two commodities higher. Wheat will likely go along for the ride on the futures board, likely getting back to some of the levels seen earlier this year.
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