ANALYSTS have been scrambling to interpret last week US Department of Agriculture (USDA) World Agricultural Supply and Demand Estimate (WASDE) report.
The headline numbers were bearish for all commodities, headlined by record breaking figures for the US corn crop.
The report raised average US yields to a thumping 175.1 bushels an acre or just under 11 tonnes a hectare, which is the highest on record.
This leaves the prospect of the US having its highest levels of corn stocks in almost 30 years.
Predictably, immediately after the news corn futures slipped to their lowest levels in seven years.
However, afterwards there was a rally off those lows as the market moved beyond the headline numbers.
Tobin Gorey, commodity analyst with the Commonwealth Bank, said increasing demand for feed grain was a positive for prices.
“The USDA raised its US corn export forecast by 6 per cent, an acknowledgement of the US’s new found competitiveness which has resulted in strong sales of late,” he said in his daily newsletter.
There is also good home-grown demand for US corn.
“Higher forecasts for US red meat and poultry production in 2017 are expected to support a 3pc lift in domestic use of corn for animal feed,” Mr Gorey said.
On the wheat front, the inverse was true. A seemingly positive WASDE report has since been interpreted negatively.
Ole Houe, director of advisory and products with IKON Commodities, said headline cuts to European Union wheat production and a lowering in world stocks were more than made up for by forecast increases in Russian and Ukrainian production.
And the big corn crop, at competitive prices, also weighs heavily over the wheat complex.
“We’ve seen wheat be competitive into feed markets for three or four months now, but the big corn crop means prices will be kept in check by what happens there,” he said.
“It wouldn’t take much to shift that feed wheat usage into corn.”
Mr Houe said the sheer size of the corn numbers had taken some within the trade by surprise.
“Corn was monstrous, and some have some feelings the number could be on the high side, with yields flagged that high, everything needs to go right.”
Peter McMeekin, origination manager at Nidera Australia, confirmed there was some skepticism surrounding the numbers.
“The market had foreseen increased yields, but maybe not of this magnitude,” he said.
“They are now questioning whether these increases are achievable.”
“I would say the downside is far greater than the upside and these numbers may well be the year high yield for both grains.”
Mr Houe also said there had been some support for the market from the Black Sea, where prices have jumped $12/t in the past week with growers withholding grain from the market.
“This is good for the competitiveness of Australian grain into Asia,” he said.
However, although the WASDE report flagged increases in wheat production in Australia, its official number is still only 26.5 million tonnes, which is up to 2mt less than the figures of some private forecasters.
The CME Group Chicago December wheat futures figure on Wednesday morning was US439 cents a bushel, while the ASX December NSW wheat futures were at $237.50/t.
