Market falls on USDA report

Market falls on USDA report


Market analyst Malcolm Bartholomaeus, Bartholomaeus Consulting.

Market analyst Malcolm Bartholomaeus, Bartholomaeus Consulting.

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The wheat market fell after the USDA report increased estimates for both US and global wheat ending stocks.

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The wheat market did not react well to the December USDA Report. The market fell after the report was released, but it did hold at the contract low from the previous session.

We started December on what looked like a positive note, with futures rising in the first trading day of the month, and moving higher on the second trading day, before beginning a sharp decline that lasted for seven trading sessions.  From the high set on December 2, the market fell 32.25 USc/bu into the close on December 12.

The problem for wheat was an increase in estimates for both US and global wheat ending stocks, and by more than expected. Weak export inspection numbers continued to point towards slow US exports despite the recent drop in prices.

Fortunately, the slide in prices has been stemmed temporarily, with a modest rally from the new lows last week, to at least restore a part of the value lost since the beginning of the month.

The problem is that the rally still looks tentative, and has not been helped by a lift in the value of the US dollar against a basket of currencies. In terms of our market, it has also not helped that the Australian dollar has lifted against the US dollar, and therefore against most other currencies as well.

One positive that did emerge late last week was the weekly export sale numbers for the US, which recorded a sharp week on week lift in wheat sales. This might signal that at last US wheat has begun to become competitive against wheat from other origins.

Back to the Australian market though, and while cash prices in some port zones eased as US futures fell, prices in export port zones tended to hold their value, until US futures began to rally.  That coincided with the rising Australian dollar, and that seemed to trigger a decline in wheat prices across the board.

By Friday last week, cash prices at Pt Adelaide had dropped $9 a tonne from their peak price of $251/t.  Having traded at or around $250/t since 24 November, we suddenly find prices drifting down closer to $240/t for the start of the last trading week before Christmas.

This was always the risk. Prices in NSW and Victoria have been falling faster than Pt Adelaide prices anyway, and if prices in export based zones also begin to weaken, it takes that little bit of support away from all other prices.

Leading into the rainfall event at the start of December, prices for most grades of wheat firmed in southern NSW and Victoria.  Since the rain, prices for high protein wheat have fallen by close to $25/t, and are down close to $20/t for APW. It is the lower grades of wheat which have held their value better since the start of December.

None of this was expected, but it supports the notion that cash prices in eastern Australia had moved too high relative to international price levels.

Northern NSW prices have held better though. Their harvest was over, with not a lot of downgrading, so feed users are still competing for wheats of all grades against the small crop this year.  It is further south that supplies of feed wheat have lifted, taking away some demand for generic wheat of whatever grade.

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