Mid-week market report - 12th June 2019

Of late, the primary wheat market driver has been the delayed US corn planting. Earlier this week, the trade patiently waited for two sets of data about the situation to help gain a steer on the next likely wheat price movements.

The first of these data sets came on Monday evening in the form of the latest weekly US crop report. It put the drilled corn area at 83%, up from 67% the previous week. Although this was encouraging and at the top end of trader expectations, it was well behind the average of 99% for this time. This suggested that over 14 million acres were still to be drilled in challenging conditions.

The second set of data was the Unites States Department of Agriculture's (USDA) June World Supply and Demand Report, published late yesterday afternoon. This reflected the difficult US corn drilling conditions and made cuts to the potential planted acres and yield.

Compared with its May report, the USDA reduced the drilled and harvested area by only 3 million acres, yet had yield down by a significant 10 bushels per acre to 166 bushels bpa. The net effect is a US crop 34 million tonnes lower than previously thought and 19 million tonnes lower than last year.

With revisions to trade and consumption, the world corn balance sheet now has the 2019/20 year end stocks sitting 35 million tonnes lower than last year at 290.52 million tonnes. Overall, it is a bullish corn report and, although there is nothing to qualify the drop in yield, many trade estimates see 10/12 million acres not getting planted. As a result, futures reports could be also be bullish and therefore support trade.

On the contrary, the USDA picture was bearish for wheat alone. The 2018/19 statistics were left more or less unchanged but, for 2019/20, modest increases in production for the US, Russia, Ukraine and India lifted world wheat production by 3 million tonnes in May to a record 780.83 million tonnes, as well as year-end stocks to a record 294.34 million tonnes.

In Russia, the current heat wave is not thought to be damaging for wheat crops with their grain harvest now underway. Analyst, SovEcon made modest cuts to their Russia 2019 wheat crop estimate, moving it down 400,000 tonnes to 82.2 million tonnes. This is well above the USDA who has it at 78 million tonnes – highlighting wide variations in Russian harvest prospects.

Crop fears have also eased in Australia thanks to welcome rain. However, The Australian Bureau of Agricultural and Resource Economics (ABARES) reduced their crop estimate to 21.2 million tonnes; below the USDA which predicts 22.5 million tonnes.

Currently, the only strong bullish market dynamic would appear to be the US corn crop prospects and that could still get worse in due course. However, how bad it will be and how much it will influence world wheat demand remains to be seen. This will be supportive but the reality is that, with the recent rain seen as beneficial for European and UK crops, in the short term the bulls need fresh feed to stop prices drifting.

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