The December USDA Report: Sometimes No Change Is a Change Itself
The USDA, without actually changing anything in the numbers, partially met the expectations of those market players who still believe in the magic of this report. It just so happened this time that there really was much of geopolitics. Rather, it did not scare traders but even gave some hope: it is not worse and that is what matters.
One question: Where are the millions of billions of purchases promised by China?
The increase in production and reduction of corn inventories to 297.8 mmt is explained by consumption growth by almost 5 mmt. This is ethanol echoing. But India's chickens are nowhere to be seen. Apparently, they won't be fed with corn. Then what's the point of this tender activity? Where will Russia deliver the extra millions (1.7)? To Iran? Fine, we've got 0.5 mmt of corn from somewhere but the rest of it was taken from what reserves exactly? And where is South Korea's appetite?
The U.S. exports are slow and heavy-going, but Argentina is almost all sold out, and the new grain will not appear until March. As usual, there are no traces of the Brazilian drought in the report. There's silence about Zimbabwe with its halved production.
According to U.S. analysts, the total wheat production will drop by less than 1 mmt under the principle of "more in one area, less in another." Consumption will swallow stocks. At the same time, judging by the current rate of wheat export from Russia, the predicted 34 mmt are still unrealistic. Except that Russia will correct this figure by adding Kazakhstan and Iran to local statistics, for example. Neither the projected surge in production in India nor a decline in Pakistan are shown in the report.
This page of the report will see the biggest changes in spring and summer, so far this is just an attempt to read the weather tea leaves. Poor wheat will only be supported by tenders. Ukraine is gradually ceasing to pretend that domestic wheat consumption is stable, and at this rate, by the end of the season, the export potential will return to the mid-summer UGA assessment. As a matter of fact, the consolidated volume exported and in line-ups is already approaching 15 mmt. The rest is almost sold out, and there is a demand — then why not?
As for soybeans, no chickens or Chinese pigs or anything are to be seen. Stocks are higher than expected. What will be signed on Jan. 15 and who will buy it is indicated in the report. Here is a clue — "nobody." Even Trump on Twitter (ha!) said that "maybe 15th, or maybe later".
Each following report is less and less encouraging.
There have appeared reports about avian and swine flu in the EU. Egypt learned the bad things from Ukraine and Russia with the idea of its own grain stock exchange. China is selling pork from state reserves. As much as 100 thou. t to feed 1.4 bln of Chinese — this sure will significantly reduce the deficit in the market.
I suspect that it has been decided to change "China" to "Iran". Americans have got a new punching bag and World War III is in a full swing in Twitter capturing Facebook armchair analysts.