USDA report sparks sell-off

That selling dried up the next night though as some wanting to secure coverage for grain supplies hit the buy button before the report.

When the report was released, there was a sharp sell-off in all grains. However, the Australian dollar also fell, thus shielding $A wheat futures values from the first round of price pressure. The day after the report, futures still fell away and this time December $A futures values fell by close to $A12 a tonne.

The largest price falls after the report have been in corn. The trade and investment funds had built a large bought position into the recent sharp rally in corn prices, and with confirmation that the corn acreage has been secured, there has been an unwinding of those positions.

In contrast, buying had not been that aggressive in the wheat market, meaning fewer bought positions needing to be sold off. That has limited the price decline in the wheat market, and in fact allowed wheat prices to rise at the end of last week despite further losses in corn prices.

Turning to the report, the USDA is projecting a modest increase in global wheat stocks in 2021/22, of just 290,000t. As a headline number, this is providing support for wheat futures. Although wheat production is forecast to rise by 12.8 million tonnes, consumption is also up another 8mt, allowing production and consumption to be very close to equating.

However, the numbers are still assuming strong wheat consumption in China, and thus a further rundown in Chinese wheat stocks. Although Chinese imports are projected at 10mt (10.5mt in 2020/21), it is still not going to prevent stocks outside of China from growing this year, by a forecast 3.29mt.

That is the warning for the wheat market. Where it actually counts, global wheat stocks are increasing, making it three years in a row where wheat stocks outside of China have grown.

When we go looking for where stocks have been increasing, we see that Russia features significantly. That too is a warning for global markets, as it indicates plenty of capacity for Russian exports to continue to dominate global pricing.

However, a positive for Chicago Board of Trade futures is an ongoing projection for US wheat stocks to decline. The current projection is for another 2.67mt to come off US stock levels, which will bring the total decline in US wheat stocks to 8.34mt since the start of the 2019/20 marketing year.