The latest data published by the United States Department of Agriculture in its January reports continues to show that the supply issues in the global wheat markets are continuing to ease. That is not good for Australian farmers continuing to hold wheat in the hope that global shortages will send prices surging back above $400 a tonne again.
The main thrust of the reports released last week were to confirm that US ending stock estimates, and global ending stock estimates, are slowly rising. In part this is on the back of big crops in Argentina and Australia.
Global ending stocks were raised by 1.77 million tonnes, while US wheat stock estimates for the end of the marketing year were raised by 810,000 tonnes.
Production estimates were increased for Argentina and the EU. Like Australia, Argentina is now expecting a record crop this year. There was some relief to stock levels with a drop in opening stocks for Russia, but a 1.88mt drop in global consumption put paid to any result other than an upgrade to global ending stocks.
Wheat prices are at extremely high levels, and so it comes as no surprise that feed use has been pulled back, resulting in an overall decline in expected consumption. Feed use is dropping in the US, European Union and Russia because of those high prices.
Within the US market, exports are down a little, based on the pace of exports to date and the uncompetiveness of US wheat at recent price levels. When that is combined with a drop in feed use, US stock numbers have been increased by 810,000t.
High prices fix high prices, and the first part of that process is to reduce consumption. The next stop will be an increase in acreage planted globally, and that has already begun in northern hemisphere winter wheat areas. In the US, for example, winter wheat acreages have rebounded to be at their highest levels since 2016.
What we don't know is the impact that high fertiliser and chemical costs will have on yields, whether spring acreages will be pulled back because of production costs, and how the season will prevail as the world works through a second La Nina year in a row.
Heading into the January reports, wheat futures rallied as market participants bought wheat back and sold corn to unwind spreads they had established earlier. Once the report was released, the market had let go by close to 30 US cents a bushel ($A14.50/t) by the end of last week.
Further weakness during this week will be unwelcome, as it will open the market up to further downside, at lower levels compared to where the market has been trading since October last year.
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