Unpredictable impact of USDA in the market

2020 has brought many surprises with it as the United States Department of Agriculture also shared its findings in the last week as US Grain Stocks Report. Traders were expecting small numbers but the United States Department of Agriculture had other ideas about soybean, corn, and wheat supplies. By the end of 2019-20, old crop corn stocks were 50.7 MMT which is 10.2 percent down as compared to the same time in 2019. The ratios were very low than the average pre-report trade which is estimated to be 57MMT. Corn stocks were also 8 percent down as compared to last year while off-farm stocks were 12 percent down year-on-year.

In the fourth quarter of the marketing year, the major consequence is residual usage and higher feed-in light of lower corn for ethanol usage because of travel restrictions due to COVID-19. But because of the huge demand for US corn from China, the price outlook is tolerable unless and until there are some yields reforms from the main US production states.

On 1st September, soybean stocks also surprised below trade expectations at 14.2 MMT. This is shocking knock down by 42 percent or 10.5MMT in comparison to the previous year. If Beijing continues to buy up until this fall, then definitely the US stocks will be able to balance their sheets, particularly in South America. However due to climatic changes in the Pacific Ocean, some regions of Argentina and Brazil have suffered a dryer season this year. Less than average rainfall in Brazil will result in delayed sowing of corn and soybean which will result in fewer yields.

At the end of the first quarter of the year 2020-21, US wheat stocks a total of 58.8 MMT, which is lowest since 2015. From last September, stocks held on a farm are estimated to be 4 percent down, and off - farms stocks are 10 percent down from a year ago. This lower number indicates that from June to August 2020 reduction is up to 4 percent from the same months of 2019.

The USDA also minimized its wheat production from 300,000 metric tons to 49.6MMT due to lower yield in fields. At the beginning of the last month, Barley stocks totaled 3.9MMT, which is 5 percent down from September 2019. The stock of Sorghum across the country was 54 percent down in September which was 750,000 metric tons in the last year.

Last Week, all US future bourses faced a speeding ticket related to stock numbers of corn surging by 4 percent, soybean by 3 percent, and wheat by 5 percent. All the funds were consumed in buying 55,000 corn contracts, 30,000 soybeans, and 25,000 wheat contracts. In a nutshell that amount is almost equal to 14.5 million metric tonnes of grain in one day. Since the rally, the two trading sessions of both corn and soybean futures show Wednesday price gains but in the case of wheat, it gave up US$2 of the US$10.50 per metric ton surge. The market showed a surprising reaction to the wheat number.

The global balance sheet seems extremely comfortable at the moment yet the US is highly uncompetitive in the current export scene. The issues faced by Argentina were handled by higher Russian production. The Russian Ag Ministry in the last week increased its wheat harvest which is estimated to be 82MMT from 75MMT. In comparison, The USDA is still pacing at 78MMT but it can overcome this by releasing its report on the latest Worlds Agricultural Supply and Demands Estimate by Friday. As a result, the Russian export forecasts are on the rise.

Sovecon, which is a local agricultural consultancy has increased its export of wheat which is estimated to be 1.7MMT to 38.8MMT which meets the record of 41.4MMT for the years 2017-18. In the July-December half, it will export at 24MMT and almost 15MMT in the other second half of the year. In Argentina, the extremely dry season has resulted in less wheat production as the farmers also reported that the majority of them will be unable to feed themselves.

The BAFE (Buenos Aires Grain Exchange) has minimized its wheat harvest of 2020-21 to 17.5MMT down from 21MMT in August. It shows a revised lower than the USDA number as it is less than 2MMT. For this year, the wheat price seems to be all right but if the dryness in the climate of the Black Sea continues for the next year as well, the situation will be alarming. In such a situation, the whole globe will face a shortage of wheat supply. But for Australian farmers, there is great news related to wheat production, as climatic disturbances in the Black Sea and South America will continue disturbing the summer and winter crop production.

In the coming weeks of this year, the domestic harvest will increase but still, there is a major issue as the Bureau of Meteorology has officially announced the sudden climatic changes on the way can result in minimum rainfall.