A BEARISH set of numbers from the latest US Department of Agriculture (USDA) production reports has wiped off all of the cautious grain price rallies of December and has set a gloomy tone for grain pricing for both old crop and the upcoming season.
The USDA numbers, which included a 2 per cent, or 331 million tonne, increase in the size of the corn crop, caught the market on the hop, sending Chicago Board of Trade (CBOT) March 10 corn futures down 30c, the maximum daily limit, to US392c.
The reason the USDA caught the market on the hop was that traditionally, by the time it puts its January report, crop production estimates have generally been relatively stable, without too much divergence from the December numbers.
However, in a forecast that some Australian commentators have said has differed from the opinion of the US grain trade, the USDA scaled up its estimates by three bushels an acre, (250kg/ha), a massive increase when put across the huge amount of acres planted to corn in the US.
But the bearish tone of the USDA report did not end there.
It also raised the amount of wheat the US was carrying to 195 million tonnes, revising the figure up by four million tonnes, meaning closing wheat stocks in the US are the largest since 2001 and one of the top ten highest carryovers of all time.
Another USDA report, into international production, pegged a 10 million tonne rise in global wheat, corn and soybean production to 2050 million tonnes, due to good seasons in the US and Russia and a predicted bumper soybean year in South America.
With these factors in mind, it was little wonder that even a predicted decline in wheat plantings in the next American season was not enough to bolster market sentiment.
The Australian market, so far, has been resilient to losses on the US futures exchange.
ABB cash wheat prices remain virtually unchanged across the east coast from a fortnight ago, sitting at around $208/t in Victoria and $226/t in NSW, however there has not yet been large scale sales of warehoused grain as yet, which may trigger a decline in cash values.
Alick Osborne, managing director of Louis Dreyfus Australia said he did not see much upside from the USDA numbers.
“The numbers were bearish, and I think that, to an extent, US markets were surprised by the figures.”
“It’s one of the highest figures ever for wheat stocks, and that is going to more than compensate for smaller wheat plantings this season, even if there is sustained reduction in plantings, there is still a large carryover.”
Mr Osborne said the upward revision in production estimates reflected a grain trading truism.
“It’s certainly been borne out, that through the season, the big crops get bigger and the smaller crops get smaller, but those smaller crops are a few years ago now.”
While declining to definitively comment on the status of old crop values, especially given the prospect of small domestic premiums in some areas to meet local feeder demand, he said he would be surprised to see prices head up from current levels.
“It’s certainly stacked against further rises in old crop, especially when you combine this current news with the high Aussie dollar.”
New crop was harder to predict, he said, given that crops had to get through the season with kind weather conditions to meet expectations.
However, even given lower plantings, he said there were large pockets where growers did not have an option.
“Growers that have an option will probably get out of wheat, but there are plenty of areas in the world where there are no choices.”
“Certain parts of northern Australia can switch between summer and winter crops, through in the US, Ukraine and South America there are parts that can swap between wheat, corn and soybeans, but for many, such as growers in southern Australia, there is little choice but wheat or barley.”
Domestically, ProFarmer reports there is the likelihood of tightening stocks, in light of the vastly smaller sorghum planting this season, which may create some opportunities for growers holding 2009-10 crop.
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