January 20, 2012


Global grain prices face setback on USDA's report



After the USDA released a bearish January World Agricultural Supply and Demand Estimates (WASDE) report, global grain prices suffered a sharp setback last week.


Markets had been wary of the January WASDE report following the recent poor record at anticipating USDA forecasting changes to US grain stocks which are undated four times a year.


Markets were expecting a small decline in corn yields as well as lower corn stocks at the start of December. Corn was sold down sharply after the USDA said US corn supplies were not as tight as traders had expected. US corn production was increased slightly when most were expecting a reduction. But the biggest surprise was larger than expected corn stocks which implies smaller than expected corn feeding in the US.


USDA issued its first US winter wheat seeding estimates which forecast plantings to increase by 3% above last year's levels. It raised 2011-12 world wheat production by 2.5 million tonnes to 691.5 million tonnes, surpassing the previous record. World wheat ending stocks were raised by 1.5 to 210 million tonnes, the highest level in a decade, leaving world wheat importers in a comfortable position.


The USDA does not issue forecasts for the 2012-13 world grain crops until its May report, at which stage the northern hemisphere winter wheat crop is just two months away from harvesting. Private forecasters are indicating a 1-2pc increase in the northern hemisphere winter wheat planting.


As expected, the USDA cut Argentina's corn crop by three million tonnes to 26 million tonnes after drought conditions harmed yields in the past month. Brazil's corn production was left unchanged.


US corn prices fell by US$20 a tonne to US$260/tonne free on board (FOB) US Gulf last week following the USDA report. Corn remains an expensive choice for Asian feed grain markets which account for a large share of global trade compared to lower grade wheat.


World wheat prices were mixed last week. Lower quality soft red winter (SRW) wheat ended the week down US$8/tonne at US$245/tonne FOB while hard red winter (HRW) wheat lost US$3/tonne to US$285/tonne FOB. French wheat was down US$1/tonne to US$255/tonne FOB.


Strong export demand pushed Russian wheat values up by US$5/tonne to US$260/tonne FOB. Lower quality wheat grades such as Australian Standard White (ASW) and Australian General Purpose (AGP) are in strong demand by south east Asian feed buyers in South Korea, Philippines, Thailand and Vietnam. Asian demand for feed wheat is expected to continue while corn remains at a sizable premium to wheat.


South Korea and the Philippines were active last week, with new purchases of Australian feed wheat widely reported. China is also thought to have bought more than one million tonnes of ASW wheat late last year which many traders believe will eventually find its way into China's booming feed grain sector.


Storms across northern NSW have been welcomed by sorghum growers following the recent prolonged dry spell. Moree and Narrabri recorded 40-50 millimetres while falls were lighter towards the east.


Shipping stem reports indicate that January wheat exports could be one of the largest months on record with total shipments set to top two million tonnes. Strong exporter demand is helping to support local prices in a soft global market.


Grower selling has remained relatively slow coming back from the holiday period which has forced some buyers to lift bids to attract tonnage. Pool operators have been either lowering their estimated pool returns or closing pools in the past week as they look to quarantine value or pass on the downturn in markets following a sharp drop in global grain prices since mid-December.


AWB said it would close its wheat pools in Queensland port zones this Friday while other States will close in the coming weeks.

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