Shutdown stops USDA data

Shutdown stops USDA data


Agribusiness
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US grain futures markets are now running without the benefit of USDA data.

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US grain futures markets are now running without the benefit of USDA data on global supply and demand, US grain stocks, and US winter crop acreages. The partial shutdown of the US government is behind the lack of data, with little indication of when the current batch of delayed reports will be released.

The market has also been hit by fund selling, as index funds rebalance their portfolios for the year ahead. Basically, wheat futures rallied by 25 per cent last year, and so index funds have reacted by selling down wheat and moving funds into areas where gains were lower, or where prices retreated over the year.

The Australian market has also had to contend with a higher Australian dollar. Since the currency plunged down to around 67 cents US on January 3, the Australian dollar has recovered to around 72c US at the start of this week. That has kept pressure on the AUD value of US futures. The net result is that we have had a lacklustre start to 2019 for the Australian cash wheat market. While prices have held in the Newcastle and Port Adelaide port zones, most other port zones have seen values ease by as much as $7 to $9 a tonne.

Meanwhile in the global context, the market is assuming that the USDA would have announced a record low planting for the 2019 US winter wheat crop. This is based on earlier data that showed plantings were delayed because of wet weather, and that in the end some acreages would not have been planted. That at least supported US futures at the close of last week.

It will be interesting to see what happens when the official data is finally released. It could be a case of buy the rumour and sell the fact when the data is available. However, if the cuts to acreage are steeper than the market is assuming, it will be more supportive going forward.

Of course, attention continues to focus on Russia, where it is obvious that supplies of exportable wheat are tightening. However, that doesn’t mean that there is limited surplus wheat within Russia. It just means that wheat that can be economically shipped is in tight supply. One suggestion is that the Russian government will subsidise freight to allow more inland wheat to move to export terminals and enable Russia to maintain higher levels of wheat exports for longer.

The consensus is that at current futures price levels, US wheat is competitive in world markets, although other origins still hold a freight advantage into some destinations. What we don’t know, because of a lack of reporting, is whether importers have been shifting their purchases over to the US during the recent slip in price levels.

As we move forward from here, market participants will be scanning for any news against which to trade, and forming a view on where they think US export sales are heading in particular. When the delayed USDA reports that are released there could be some volatility. If the market has over estimated the drop in wheat acreage, or overestimated the level of export sales, there could be some serious downside.

However, the overall fundamentals should still say that 2019 northern hemisphere wheat production potential is under pressure, and that Russian wheat stocks are being depleted. That will provide a base for prices.

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