Market awakens from seasonal slumber as latest global data comes in

Rally for grains sparked by US crops and stocks report

Grains industry stakeholders are trying to get a handle on the size of Australia's winter wheat crop this year and are looking back to 2016 as a similar season.

Grains industry stakeholders are trying to get a handle on the size of Australia's winter wheat crop this year and are looking back to 2016 as a similar season.


Grain markets roused from a seasonal slumber on the back of new crop and stock estimates.


After a month of declining US futures, the market finally awoke on the last day of June - sparked by the US Department of Agriculture's acreage and stocks report.

The published numbers surprised most in the market, as they came in lower than expectations.

Planted acres for the three key commodities were all bullish, with corn and beans leading the charge and the wheat numbers also generating a price rise.

This surprise was enough for all three markets to finish notably higher on June 30. All shrugged-off the weight of bearish global stock levels.

The strength in the rally was no doubt underpinned by the market structure, with large managed money short positions in both the corn and wheat pits.

The corn short heading into the report was just shy of its biggest in the past 10 years.

Globally, the SNDs remain a challenge, as there are reports of the Russian crop size swinging between 75 million tonnes one day and then seemingly 80 million tonnes the next day.

Harvest reports from the US are indicating better than expected grain yield, quality and test weights and - notwithstanding the acreage report - this has certainly weighed on markets there.

Global trade flows for wheat have been solid without being striking, with the usual tenders and price discovery taking place.

The area of most interest has been the confirmation that China is back in buying US corn and there is much speculation about how many cargoes have traded.

Needless to say, the US has an abundance of corn to shift due to ethanol demand in that nation being devastated in recent months.

At home, talk has been about how big the Australian crop is going to be.

Until recently, Western Australia was crying-out for a drink and there was a similar story playing out in Queensland.

WA croppers generally got what they were looking for due to recent rainfall events across that state out-performing forecasts. But in Queensland, growers are patiently waiting for more.

Analysts are looking for an analogue year to forecast the crop size and, understandably, many are looking back at 2016.

Interestingly, the report published by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) in June of that year had east coast wheat production pegged at 11.6 million tonnes. Last month its forecast was 13.5 million tonnes for the same region.

The total wheat production for Australia in June 2016 was 25.4 million tonnes, compared to this year's forecast of 26.7 million tonnes - primarily reflecting the poorer conditions being experienced in WA.

Cash markets have generally been quiet, certainly in the new crop slot. This is ostensibly due to continued demand uncertainty.

Domestic consumers are understandably wary of what global macro-economic factors may be six months from now and have largely been absent from that market.

Volume has been transacting in the January forward market, but this has largely been populated by the trade.

Aside from a recent uptick, old crop wheat markets have been under pressure as the spread to barley widened so much that it had been excluded from most rations.

The inverse from old to new crop has narrowed significantly from its peak and it feels at present as though that spread will erode sooner than many may have originally thought.


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