New figures from the USDA (the US Department of Agriculture) have put the grain market in a different light. In 1 day, 3 reports appeared, all of which have bearish news for the futures market.
On Friday, January 12, the monthly WASDE report (which reports on the global supply and demand situation), a forecast for the acreage and a quarterly report with news about stocks, was published. The figures from the Ministry of Agriculture did not match analysts' expectations, causing prices to react sharply.
Record wheat production
World wheat production is increased by 1,8 million tons to 757 million tons in the latest WASDE report, a record. The final stock is slightly lower (268 million tons), but does set a record. The USDA puts a small minus on the stock, due to a lower volume of wheat in Australia.
Russia
The USDA figures for Russia are impressive. The wheat yield for 2017 was adjusted upwards by 2 million tons to 85 million tons. This brings it closer to the figures of its own agriculture ministry, which speaks of 85,8 million tons. They predict an export of 35,3 million tons, slightly higher than what the USDA writes about.
A favorable ruble and wheat in abundance ensure that exports increase (+1,5 million tons). By comparison, wheat exports in the United States (US) this marketing season are estimated at 26,5 million tons.
Area of wheat
Around the turn of the year, the CBoT in particular responded to speculation that the extreme Arctic cold could decimate the American wheat acreage. The USDA has indeed adjusted the figures downwards (-78.000 hectares). Analysts expected on average a reduction of more than 600.000 hectares, a major setback. According to the USDA, the area of hard red wheat is decreasing the most. Soft red wheat and white winter wheat both increased in area.
Traders view the figures with suspicion. It is not clear to what extent the wheat is affected by frost damage. Drought is also increasing in the southern Plains. As a result, a large difference between sown hectares and harvested hectares is expected.
Depth record export
Export figures in the US were very poor in week 2 of the new year. Only 71.000 tons of grains were exported. In week 1, export figures also reached a record low, which was immediately broken the following week. A low dollar rate does little to revive trade. The Christmas period is cited as the reason for the low sales.
Price difference
The world trade in wheat is currently in Russian hands. Between January and November 2017, the country exported a quarter more wheat (compared to 2016). The wheat price gap between Russia and the US has narrowed to just $3 per tonne, prompting Americans to bet on renewed interest. In addition to a favorable exchange rate and abundant wheat, Russian exporters are helped by transport subsidies and improved infrastructure.
The past teaches us that exports decrease in the first months of the new year. This will not be taken into account before the beginning of 2018. This does not bode well for price formation. The Black Sea region has experienced relatively mild weather so far. This is changing. There is hardly any snow thanks to the warm winter. If it gets really cold, the unhardened grain can sometimes take a big hit from frost.