Last week the United States Department of Agriculture released its first estimates for the 2020/21 global crops. Even though the USDA projections are watched closely, and tend to drive moves in US futures markets, they are also the last of the new season projections to be published each year.
As with other forecasters, they also tend to use trend data in their early estimates. While acreage estimates might be well analysed by now, yield data tends to be set by averages or underlying trends. As a result, production estimates at this early stage of the growing season tend not to fully reflect current growing season conditions.
Even this week the news reports are suggesting dryness in parts of the US southern plains, a further decline in the condition rating of the French crop (indicating that recent rains have simply slowed the deterioration in that crop, not reversed it), extensive dryness in forecasts this week for southern UK, northern France, northern Germany and north west Poland, and dryness to persist in north western Ukraine.
Here in Australia there is not a lot of rain for our grain belt in forecasts going out to May 25, with dryness likely to be an ongoing issue for WA in particular.
Despite the weather concerns persisting on multiple fronts, the high level USDA projection is for another record global crop, with global stocks increasing by 15 million tonnes over last year. As usual though, the bulk of the increase in wheat stocks is in China, leaving stocks to climb by 4.99mt when we exclude China from the figures.
A lift in stocks outside of China will be damaging for global markets over the course of this year, but again we have to look at where those stocks are likely to build. In this case India will account for 3mt of the 4.99mt.
At this stage India is not expected to be a major exporter, and so those stocks can probably be set to one side as well.
So that leaves the balance sheet looking a lot tighter, and suddenly quite vulnerable to adjustments in expected yields in key parts of North America, Europe and the Black Sea, not to mention Australia as well.
Over the past week or so we have seen US futures drift lower, simply as some of the risks associated with this year seemed to abate. We are on the cusp of finding out if that is warranted or whether ongoing issues and fine tuning of projections over the next few weeks will restore some value in new season pricing.
Meanwhile the $A value of December futures has dipped below $300 a tonne for only the third brief period since last December.
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