The February USDA Report was released on Friday night last week, breaking a two month drought on market sensitive data. Also released was the US Plantings Report and Grain Stocks Report. Updates were also given for December US wheat export sales late last week.
The wheat market has not responded strongly one way or the other and has remained within its recent trading range. There were a couple of positives from the various reports. One was a much smaller than expected estimate of winter wheat plantings in the US. They have come in at the second lowest on record, because of the delays to planting caused by their wet autumn. It also means that a lot of the crop that did get planted, went in late, and into overly wet conditions.
Another positive was a 570,000 t drop in global wheat ending stock estimates. This extends the decline in global stocks year on year to 12.49 mill t. However, outside of those two factors, it was somewhat negative for wheat. Firstly, the decline in stocks was driven by a 3.5 mill t drop in Chinese stocks. The USDA lowered their production estimate by 1.07 mill t and lifted consumption by 2 mill t. The net result of that is that stocks outside of China have been lifted by 3.02 mill t.
Secondly, stock levels within the US were raised on the back of reduced usage, partly because of less seed use because of the lower plantings, but also lower use with less being needed for livestock feed. US stock levels were raised by 980,000t, to 27.5 mill t, well up on the 16.065 mill t back in 2013/14. So, the headwinds for wheat got just a little stronger on the back of rising stocks in the US, and globally outside of China. It takes some of the pressure off the balance sheet and will allow the market a bit more of a buffer against any issues seen for the 2019 crop.
Another negative was Russia. Production estimates were lifted for their 2018/19 crop. A 1.6 mill t lift has taken their crop to 71.6 mill t. It has also allowed a 1 mill t lift in their export projections, to 37 mill t, while allowing their ending stocks to lift by 1.1 mill t to 6.47 mill t.
Russian ending stocks are down 5.4 mill t year on year, and production is not expected to rebound to the record crop seen in 2017/18. However, they may still be able to maintain strong export numbers in 2019 which is likely to keep the pressure on the pace of US exports.
The near term positive for the market is the reduced acreage in the US, and the potential condition of their winter wheat crop as it comes out of dormancy. If the crop has suffered from less than ideal planting conditions late last year, we could see some upward move in US futures until their growing season settles down.
The other positive is the recent uptick in US export sales. So far, the USDA have released two weekly sales reports that have been delayed since December. In both cases they came in with strong numbers. We need that trend to continue to make sure that some pressure remains on US ending stock estimates. At least the USDA have left their US export estimates unchanged at 27.22 mill t for this year.
– Malcolm Bartholomaeus
