The Wasde report of the US Department of Agriculture USDA, published on Friday 10 July, corrects the closing stocks of, among other things, grain maize and wheat. This does not mean that shortages will arise, but the abundant starting position is partly reversed due to disappointing harvest forecasts.
Briefly
After an already heated week on the grain market in Chicago and Paris, the markets reacted negatively (bearish) to the positive (bullish) news from the report. At the end of June, the USDA made a surprisingly significant area correction for grain corn. Stock exchange traders had therefore already estimated that maize production would decline before the Wasde report was published. This happened, although the crop forecast was lowered another 1 billion bushels from June. As a result, the expected closing stock was also adjusted downwards.
Reduction of Russian harvest
The ministry reduced global wheat production by 4,12 million tons. Lower yields in the EU, Russia, US and Morocco are the cause of this. All analyst firms have recently corrected their Russian harvest forecast negatively. The Americans do this with half a million tons of wheat (76,5 million tons) and the yield of grain corn was increased by 800.000 tons. The figures for Ukraine remained unchanged, where it has been known for some time that the harvest is negative.
In addition to concerns about low yields in the Black Sea region, there are now also fears about quality. A rain front is expected in the area where the combines are threshing plenty of wheat. Prices are rising not only on the futures market, but also on the physical market. In Russia, the FOB price rose by $4,5, reports analyst firm SovEcon. Another agency, IKAR, estimates that the price will increase by $8 in August. In a rising market, Russian arable farmers are inclined to provide less supply, which can further increase prices due to tight availability. On the other hand, exports are also lower. Only when broad availability of wheat from other parts of Russia is a fact can trade really accelerate.
Drought negative for summer grain
Rain in southern Russia and Ukraine is negative for grain quality, but drought in other parts has a negative effect on summer grains. Not only spring wheat but also crops such as sunflowers and corn can be affected by this.
It is now clear that Russia will not achieve a top wheat harvest, despite a gigantic acreage. The story in Europe is also well known. This places a floor of around €180 in the market, which could also move upwards by €10 given the current circumstances. However, the price of grain maize also ensures that a price ceiling is achieved. After all, if feed wheat becomes too expensive, grain maize is more likely to be used. There are 2 factors that can influence this.
Less corn, more soy
For starters, a period of hot, dry weather has arrived in the Midwest just as crops need moisture. This can affect the yield. Not only from corn but also soy. In the Wasde report, the USDA reduces the world corn supply by almost 23 million tons. Partly due to a lower American harvest and partly due to lower throughput from the old season. The expected ending stock of soy actually increased.