Frontrunner - Latest USDA fuels bearish trend

WHEAT

The USDA published their latest monthly world supply and demand report late on Friday afternoon as well as their first estimates for next season. The report did nothing to arrest the current bearish trend for wheat and corn markets although it could be argued that their production estimates for 2019/20 are optimistic. There is plenty of weather to get through before many of those crops are planted let alone harvested.

Revisions to the current season world wheat balance from the April report were minimal with production down 1.3 million tonnes to 731.55 million tonnes and year end stocks down just 600,000 tonnes to 275 million tonnes. However, the USDA sees significant wheat production increases in 2019/20 for all the major producers (Argentina, Australia, Canada, the EU, Russia, Ukraine and the US). The USDA predicts the world harvesting an additional 46 million tonnes for this year, a record 777.49 million tonnes. Increases in consumption would leave year end stocks up 18 million tonnes to a record 293 million tonnes.

The current year corn report was bearish with production and year end stocks jumping 12 million tonnes on the previous report. Highlighting better than expected crops in South America, the world total output is now set at 1,119 million tonnes and year end stocks at almost 326 million tonnes. The USDA sees 2019/20 world production up further at 1,133 million tonnes, although consumption increases will see year end stocks lower on the year at 314.71 million tonnes. However, if we exclude China world stocks will actually increase by almost 7 million tonnes.

From this report there is clearly an abundance of both wheat and corn available. However, it is important to note the current corn planting delays in the US due to excessive rain. The USDA estimates the US corn harvested area increasing by 3.7 million acres and the yield at 176 bushels per acre based on normal planting by mid May. Given the excessive rainfall and flooding in the Midwest it is highly unlikely that the corn crop will be fully planted by the middle of this week, raising questions over the total area that will finally be planted. The longer it takes to plant, the more likely it is yields will be compromised. A close eye will be kept on the USDA weekly planting updates each Monday evening. The huge current fund short could yet come in to play although the Trump/China trade spat is also a significant bearish factor to contend with.

​OILSEED RAPE

Friday's USDA report was bearish to oilseed markets with world soybean production for 2019/20 increased by 2 million tonnes, Chinese imports reduced by the same amount and year end global stocks are predicted to hit 113.09 million tonnes. If realised, the year end global and US stock levels would both be at record levels. Most of the key data coming out of the report was bearish compared to pre-report expectations but the muted market response suggests that there is a degree of scepticism among traders. It also appears that much of the bearish sentiment has already been reflected in market prices.  

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