Corn takes wheat on downward trend

Corn takes wheat on downward trend

Cropping
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Grain prices are set to fall in the near term, according to the latest USDA Report.

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Last week's United States Department of Agriculture Report did not disappoint. As expected, it has shaped the direction for grain prices in the near term, with that direction being down. Once again it was corn at the centre, with larger US supplies, reduced US exports and increased US stocks pushing corn prices down sharply, taking wheat prices with them.

Last week December wheat futures were down 24 US cents a bushel, or $A12.85 a tonne. In turn our new season prices fell $5 to $ 13/t. With the exception of the Port Adelaide port zone (down $13/t), the slightly smaller price declines signal a further strengthening in Australian basis levels.

With dry conditions persisting in northern NSW it is no surprise that basis levels are holding firm or increasing. This will continue until we see the market set itself to ensure that grain moves smoothly from where it is available to where it is needed.

With cattle on feed numbers peaking for the year in the June quarter, demand for grain is not going to ease any time soon. The difference in supply this year will come from better production of all grains from southern NSW, Vic, and the Port Adelaide zone in SA.

MARKET UPDATE: The weekly movements in wheat prices. Source: Malcolm Bartholomaeus.

MARKET UPDATE: The weekly movements in wheat prices. Source: Malcolm Bartholomaeus.

However, we are still a long way from harvest, and apart from seeing how well spring treats us, we will also have to see how much of the cereal crop gets diverted to hay production this year.

In terms of wheat, the USDA Report was a little mixed with a tightening global balance sheet against a lift in the ending stock estimates for the US. Although year on year US wheat stocks are still set to fall, the decline has been reduced despite expected increases in domestic consumption (feed use) and exports.

Globally wheat production estimates were reduced by 5.5 million tonnes with reductions for Turkey, the EU, Kazakhstan and Russia. The production declines are the result of hot, dry weather in June and expanding dryness in spring wheat areas of the Black Sea region.

The problem for wheat in global markets is that we are still expecting a lift in wheat stocks year on year. Although the critical Russian crop is being pulled back, the Ukrainian crop is doing better, and the Black Sea in total will easily remain the dominant force in global trade.

There will also be strong export competition between the Black Sea and the EU, and the US will have to fight hard for exports against all other major exporters.

With pressure from corn prices as well, it is hard to see global wheat prices staging a significant recovery. This will set the price base for the Australian market

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