Harvests across the Northern Hemisphere are now wrapping up and with the latest quarterly stocks and acreage report from the USDA injecting a bullish sentiment into the markets across all commodities, values have made impressive gains throughout October so far, reports Trader Claire Strachan.
The latest edition of the quarterly stocks and acreage report from the USDA made a staggering reduction to US corn stocks well below market estimates of 2.250bb at 1.995bb, roughly 6.5Mt lower than average trade estimates.
The report followed suit for soy with US stocks reported at 523Mbu, under estimates of 576Mbu. Finally, for wheat, the stock levels which were reported were at the smallest level they had been at in five years at 2.159bb, under estimates of 2.346bb.
Following on, last Friday the USDA released the next instalment of the WASDE supply and demand report. With an expectation of another bullish report, the figures were less dramatic than anticipated. For corn production in the US and world, we saw a reduction to both estimates at 4.52Mt and 3.56Mt respectively, which led to ending stocks coming down as a result.
Demand for corn globally was also reduced which took the heat off increases to corn values. The report for wheat was less supportive as world stocks were estimated at a new record, seeing an increase to Russia’s crop by 5Mt from the previous report last month, taking the total up to 83Mt. Overall, global wheat production increased 2.59Mt to a total of 773Mt for the season.
Looking towards Europe, the previous two reports from Strategie Grains have made increases to the EU-28 2020 wheat crop size totalling 1.5Mt, taking the latest estimate to 129.5Mt. The increases were made from improving harvest conditions in Northern Europe and were the first upward adjustments made in nine months.
The Russian wheat harvest is now nearing completion at 87.1Mt before drying and cleaning which would give an estimated crop of 83Mt – in line with the latest USDA forecast. With attention now turning to inputs for the 2021 harvest in relation to sowing, current market drivers which are attributing to stronger markets is the lack of rainfall seen across the Ukraine and Russia.
Although Ukraine recently received some downpours, it has been reported to have been one of the worst drilling periods the country has seen in ten years. Russia has been the real point of focus in the past few weeks with no sign of rainfall coming to the country during the planting season. However, with rainfall now forecasted on the horizon, it is possible we could see values relax if realised.
Here in the UK, there is still widespread debate over how much wheat was produced this year in the UK along with carryout stocks from the previous crop. Recently, DEFRA published their first estimate of the UK’s 2020 wheat crop at 10.13Mt – a 37.5% drop from 2019.
Many have felt this figure to be incorrect due to the fact that production figures for Wales and Northern Ireland were left unchanged from 2019 – pointing to a production level of 9Mt.
Additional revisions to UK wheat supply came from the AHDB’s latest BPS data which indicated that 2019 was initially overestimated and likely to be 3% lower than previously thought. This in turn brought back carry over wheat stocks down 600k from a previously estimated 3.5Mt carry through.
As we head towards the end of 2020, there are still plenty of obstacles ahead which present ample opportunities for market volatility. The end of October will establish whether the UK will exit the EU with a trade deal, and ‘Deal or No Deal’ could present drastic market movements on either side.
The US elections at the start of November will of course provide currency fluctuations and might see a shift in buying patterns from China of US goods. Of course, supply and demand will play a key factor for market sentiment.
Export trade demand is strong across all commodities which is helping values retain their higher levels. Dry conditions in the US and Russia are at the forefront of market talk. But we must also keep in mind that global grain production is set at record levels for corn and wheat this year, with latest estimates from the International Grains Council currently putting corn and wheat at 1.160Bt and 763Mt respectively.