ANOTHER lacklustre week on global grain markets concluded with a bearish jolt when the United States Department of Agriculture released its November World Agricultural Supply and Demand Estimates on Friday morning.
The market bulls would have certainly felt a little squeamish reading the report, especially with the corn numbers. The USDA surprised the market with a 3.6 bushel per acre month-on-month increase in the national corn yield to 175.4 bu/ac. This equates to 4.46 metric tonne per hectare.
If achieved, this would be a record US yield, bettering the previous benchmark by 0.8 bu/ac. Even more notable is the fact that none of the top 10 corn-producing states are forecast to achieve record yields. According to the USDA, the biggest driver is the second highest average ear weight on record, last year being the highest.
With a bigger US crop comes a bigger export task and a larger US carry out. US corn futures retreated as a consequence, setting a new low for the December contract. Not good news for the US or South American farmer, both of which are said to be undersold compared to long-term averages.
On the soybean front, the USDA left yield unchanged at 49.5 bu/ac (1.35mt/ha) against an average trade estimate of 49.3 bu/ac.
The big mover in soybean production was South America. Brazil's soybean production is forecast at 108 million metric tonne (MMT), up 1 per cent compared to October but still 5 per cent below last year's record.
The area planted to soybeans across all Brazilian states is forecast to increase again this season, at the expense of first crop corn. This continues a long-term trend and is a reflection of the disappointing financial returns for corn compared to soybeans. The new crop plantings may only be 75 per cent complete but this does mean that a favourable season could still see last year's production record broken. The wheat news was quite benign with the USDA pushing global production up almost 1MMT to 752MMT, only a freckle below last year's record of 753.9MMT. It also confirmed another 1MMT increase in the Russian wheat crop to a record 83MMT. This is the net weight, as opposed to the delivered weight, with the big variable being the cleaning and drying losses post delivery. These are typically 4-5 per cent of the delivered weight which is reported at 87MMT.
The Russian wheat crop reportedly yielded an average of 3.06 mt/ha, up more than 14 per cent on last year's record. According to the Russian Ministry of Agriculture, outstanding yields were achieved in Siberia, a district that accounts for nearly half of the country's spring wheat production.
The bottom line here is that global wheat stocks (primarily in the Black Sea region) continue to climb while US wheat stocks are shrinking. This makes the export task for the US and many other major exporters quite difficult as the huge Russian crop continues to weight on the global wheat market.
Meanwhile, the USDA is calling the Australian wheat crop 21.5MMT. This is unchanged month-on-month and is probably on the high side of domestic trade expectations. The early spring rainfall certainly arrested production decline in some regions, but it also came too late to save the crop in others.
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