USDA July Report: Living in Dreams of Corn Continued
June heat has melted away some of the expected Russian wheat surplus. Unsurprisingly, last WASDE report was clearly bullish for grain.
A recent reduction in Russia’s production to 74 MMT (first forecasts were above 82 MMT) and Ukraine to 28 MMT, coupled with the global decline in production of 1.2% against the backdrop of a not so significant reduction in consumption, has pushed Chicago up.
All of the above is happening against the backdrop of quality "problems": If it wasn’t for bad luck, we would not have any luck at all. Due to the weather conditions in Russia, yields have dropped some, but the protein levels are high. Russian farmers have decided that wheat is valuable. But buyers are yet to decide to pay up for it. On the other side, French farmers are crying that their wheat is not so rich in protein: so far, the indicators are at the level of 10.7-10.8%.
Uneven distribution of protein is detected in Ukraine. Still, Ukraine is the feeding base. Some mixing will be done here and there, anyway, we are the cheapest. So far, everything is smoothly going to the fact that either some comrades will need to temper their requests, or they will pull on the prices. While everyone is waiting and looking at the corn, harvesting came and, with it, the usual pressure on the physical market.
Well, it takes two to tango. So far, Ukraine has collected about 9 MMT of wheat, Russia — 30 MMT. GASC and the rest of the tender guys buy slowly and reluctantly.
Back to the report. For some players, wheat holds the promise and market reaction is justified. The green monitor before the close of the exchange has changed to red this morning, but Asia has woken up — the traders have begun to drop and drive themselves down. In fact, the stock-to-use has decreased by almost 1 pp, which means that wheat is being prepared as a springboard for take-off. The weather is there to help: unwanted moisture delays harvesting in the Black Sea region. In the nomination “the best November of the decade”, the first prize is awarded to July 2019. If we swapped July and June, we wouldn’t have to deal with new reductions, but with new records instead. Gently start kissing quality goodbye. If you wash the protein in the uncleared regions of the northern neighbour, the situation will change.
Same cannot be said of corn and soybeans. This is not a kangaroo court. WASDE did not take into account the position of the Beijing FAS office in the production and consumption of corn by China and left the figures unchanged. The squares are still “drawn”. Corn yield, although reduced, is also not yet confirmed. So we continue to trade in hope.
Soy is still not needed by China, but American farmers need money. Also, the US budget is not elastic and elections are coming soon. In view of the above, USDA released a neutral report. A soybean-corn rollover is on its way to get tracked in the third number after the comma. Now the ratio of the cost of November soybeans and December corn on the Chicago stock exchange is 2.044. It is still low. Much lower than the usual 2.6. Either we overestimated the corn, or we underestimated soy. Tertium non datur. Surveys of American farmers are ineffective, and the American Ministry of Agriculture may need to make changes to the methodology. Or else, we should create a worthy alternative. I am ready to take on this burden.
As for barley — a good Ukrainian harvest of 8+ MMT and the corresponding export of 5+ MMT is based on questionable Chinese demand. Besides the fact that 24 vessels were traded to Beijing, there is no fresh gossip. BUT! And the record for rape is not set to be realized — there are no record yields, oil content is not to write home about. The deeper into the woods you go, the more timber seems to grow.
In general, the picture of the report is as follows: “the soup was over-salted, the steak was undercooked, the dessert was tasteless”. There are no Michelin stars in the cards for this mediocre dinner.