Chicago Board of Trade wheat futures moved higher after last week's September United States Department of Agriculture report, even though the numbers for wheat were negative, with another modest lift to estimated global wheat ending stocks.
The report was not that positive for corn either, with yield and production estimates coming in higher than expected. However, the market still doesn't believe the USDA numbers and was prepared to push the market higher on the back of that assumption.
Both wheat and corn garnered support from soybeans where US supplies were tightened by more than expected.
For wheat the issue remains that exporters have ample supplies and will compete strongly with each other to find outlets for their stocks.
There were downward production estimates for Kazakhstan and Australia totalling 3.5 million tonnes, but increased carrying stocks and reduced consumption estimates have left closing wheat stocks 1.4mt higher than they were in the August report.
We could see further production downgrades as well, with the Australian crop still in decline. The early harvest in Canada has also been a little disappointing. The Canadian harvest is also being frustrated by wet weather, but there is a view that the later crop will perform better because it has had a more favourable growing season than crops in earlier areas.
We are starting this week with December CBOT futures at $A258 a tonne. Normally, with an exportable surplus in all port zones, the cash price in Australia would be close to $300/t in WA, and around $280/t in SA and the eastern states, with minor variations between ports.
Once again, the drought in Australia is pushing our market well above these export parity levels. At this stage the premium in WA is $25/t, and then increasing above that as we move east through SA, into Vic and then to NSW and Qld.
There is a lot of uncertainty in our market. The southern crop is probably losing about 5 per cent a week as the drier than average conditions continue. That is constantly changing the balance sheet and the volume of grain that will be needed from SA.
In theory wheat from WA should not be needed in the east, but as the SA balance sheet tightens from lower production and increased demand from the east, the market will have to price itself to keep WA grain within reach.
Compared to last year, basis levels in SA are about $75/t lower. That is reflecting the stronger balance sheet predicated on ABARES's latest production estimates. However, those numbers are changing daily, and the market will have to try to keep up with them.
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