Mecardo Analysis - Dept data deluge dampens

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By Andrew Whitelaw | Source: USDA, CME, Mecardo. 

Key points

· Corn production in the US is expected to be higher than analysts forecast

· Global demand for feed is forecast to decline

· The world is awash with wheat

The August USDA reports are not usually highly anticipated. The wet conditions and uncertainty related to the US corn crop have changed things this year. The reports overnight were intended to give clarity on both how much corn has been planted and the condition.

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In early July there were concerns related to the acreage report which showed that year on year corn acreage had actually increased by 3% (see here). This was a big surprise since large tracts of the US were at the time waterlogged. The USDA was going to resurvey and report back in August, and again they have provided a surprise.

Corn:

In a surprise move US corn production has been increased since July by 26 million bushels. This is well above most analyst's expectations who had factored in major falls in production due to both yield penalties and lost acreage. The extra supplies are also at a time when demand is dropping with ethanol usage and Chinese demand forecast to decline markedly.

Wheat:

Those of you regularly digesting our updates will understand that corn is the big driver of wheat now. This is largely the reason for the huge fall overnight in futures (Figure 2), however, there have been some moves in wheat supply and demand. The US crop has been increased by 1.6mmt, which was offset by losses in production in the rest of the world.

The demand expectations were also globally reduced by 2mmt, largely as a result in the drop in global feed demand.

The data from the USDA if correct points towards continued low prices (on a global level), as wheat stocks remain at record levels and corn not far off records.

What does this mean?

The overnight USDA data dumps surprised the market which has resulted in large falls in futures. The reality of this data is that the world is well supplied with wheat/corn, especially in light of potential drops in demand.

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In Australia, the past year has seen very high prices due to our local drought. Will the fact that NSW/QLD is in poor condition allow basis to save local prices from the overseas falls?

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