US Hard Red Winter wheat estimate slips

US Hard Red Winter wheat estimate slips | Grain Wrap


Wheat futures were catapulted last week after the US Department of Agriculture (USDA) surprised the market when releasing its production and end stocks numbers


WHEAT futures were catapulted last week after the US Department of Agriculture (USDA) surprised the market when releasing its production and end stocks numbers in the monthly World Supply and Demand Estimates Report.

There were two main drivers of this move higher.

The first, and perhaps most significant, were cuts to global wheat production totalling 10.5 million tonnes.

The reduction included Russian production down a whopping 3.8 million tonnes due to extremely high temperatures and below-average rainfall in June.

The EU was down 2.5 million tonnes, Ukraine down one million tonnes, Australia down 1.5 million tonnes and Canada 1.2 million tonnes lower.

The USDA cut to estimates equates to a 1.2 per cent cut to the entire global wheat production, which lead to a rally in US wheat futures Friday morning our time.

The market moved US16.75 cents a bushel or about $8 a tonne in Aussie terms.

The second driver was a seemingly lower than expected Hard Red Winter (HRW) wheat estimate.

The USDA pegged this crop at 804 million bushels, and although this was up from a dismal 662 million bushels last year, some analysts had this year's estimate as high as 875 million bushels with most in the 820 to 850 range million bushel.

This HRW estimate was the second miss for the report, and another reason the wheat market had such a strong positive move.

In Australia we are tracking sideways in terms of pricing.

The larger the crop gets in the south and west of the country, the more comfortable the market becomes with the supply and demand picture for harvest.

By all means, no one assumes the Australian crop is made yet, we only have to cast our minds back to the hot and dry conditions of September last year.

But certainly, with conditions looking positive in Victoria, and South and Western Australia, the supply side is having the most influence at the moment.

Adding fuel to the fire for the supply bulls is the fact that the market is now comfortable moving grain from South and Western Australia to the eastern and northern ports.

This will continue into the next marketing year as we see a surplus of grain in the southern states and a deficit in the NSW and Queensland zones where the majority of the feed demand sits.

The canola picture is similar to the cereals in some respects, as there looks like there will be an exportable surplus from all states except NSW.

And with the market comfortable moving canola from west to east, there will be a cap in the market based on wherever the cheapest willing seller exists.

For example, if Western Australian farmers are happy to sell their canola for $550/t, and the transport costs to put the canola on a boat and ship this around to Newcastle are $80/t to $90/t, then the cap in the market is set at $630/t to $640/t delivered Newcastle.

This relatively simple spread calculation is applicable for all grains and indicates that grain will continue to flow south to north.


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