The August USDA Report was an important one. The market was looking for a lead on how ongoing production write downs for the EU and Black Sea would play out in the global numbers. The expectations were for global production to fall significantly, for this to flow into global stock estimates, and for it to result in increased demand for US wheat, allowing US wheat stocks to decline.
What was not really known was the quantum of the expected moves, and how small adjustments elsewhere in the global balance sheet might impact the final numbers.
In the end it played out pretty much as expected, with a 6.63 million tonne drop in global production. In turn, with lower feed use of wheat in the Black Sea and EU, global stock estimates fell by 1.9mt.
For the US, production estimates were lowered a little, reflecting results from the US Spring Wheat tour which saw yields under those being previously assumed by the USDA. However, US exports were raised allowing US ending stock estimates to fall by 1.35mt compared to the July estimates.
Overall the report has probably disappointed the market and, when combined with larger than expected production and stock estimates for US corn and soybeans, prices fell sharply after the report was released.
Both the EU and Black Sea production numbers were being closely watched. Regularly a range of forecasting agencies have been writing down the crops in both regions for a while now. The USDA saw this as pulling another 7.5mt off the EU crop. Year on year this is a drop of 14.18mt, or 9.3 per cent.
What might have surprised some is that in the face of declining production estimates from elsewhere, the USDA lifted the size of the Russian crop by 1mt, citing improved conditions for their spring wheat crop. What has to be remembered though, is that the USDA was well ahead of the field in reducing the Russian crop earlier. Its current estimate is now much closer to most others.
The net result is that estimated stocks outside of China and the US were not altered much from the July estimate. This alone should be enough to temper the upward move in US wheat futures for a while.
The other surprises include leaving the Ukraine production estimate unchanged, and leaving the Australian estimate unchanged at 22mt.
On the Australian number, it is not unusual for the USDA to delay adjusting our estimate until we get to September or October. It seems to take little notice of our winter rains and prefers to assess production once we are into spring. Also, the Australian season is hard to judge at the moment, with NSW being the epicentre of the drought, but Vic and SA getting enough rain to keep potential alive, and WA also fairing quite well.
Meanwhile Australian prices have continued to surge. The market is also adjusting itself so that up country prices are rising faster than port based prices. In southern regions this will slow the flow of grain to export terminals and turn it around to go north. In NSW it will allow grain shipped in from SA and WA to move to country consumption points.
If the drop in CBOT futures is sustained, it may cap our prices for a while.
