The USDA’s latest batch of numbers suggests that U. S. producers look set to churn out record amounts of corn and soybeans this fall – as well as the third-largest wheat crop since 2000.
But overseas production hiccups matched with blossoming global demand should counteract the impact of mammoth fresh domestic supplies – and continue to underpin global grain and oilseed prices.
Traders awaiting the Aug. 12 report hoping for downgrades in U. S. crop sizes due to the recent hot spell were unpleasantly surprised by the USDA’s take on the state of the crops, which projects record corn and soybean production of 13.4 billion and 3.43 billion bushels respectively.
However, the USDA’s aggressive revisions to the global consumption picture look set to compensate for the abundant fresh supplies, and potentially set the stage for a renewed period of price strength over the near term.
Inventories of corn declined both domestically and globally, while usage was increased to improve that commodity’s stocks/use ratios on both the home and overseas fronts.
World soybean stocks also declined to reflect continuing strong global consumption interest, whi le U. S. inventories remained flat but could head lower should the current hot spell in the U. S. Delta growing region impact yields in that area.
All told, a brightening global demand picture helped corn and soybean longs dodge a major production bullet in the Aug. 12 report, and could well fuel increased bullish enthusiasm here down the road.
WHEAT GOING GLOBAL
Despite a hefty increase in U. S. spring wheat output projections versus a month ago, the main theme for wheat now is how the market grapples with the change in sentiment
driven by wheat’s apparent transformation within the past two months from a commodity burdened by oversupply to a crucial food staple underpinned by burgeoning global consumer demand.
The initial driver of this turnaround has obviously been the heavy production losses seen in Russia, Europe and the Black Sea area, but the rejuvenation of end-user demand is what gives the recent tonal change its staying power.
For most of 2010, wheat importers were faced with multi-year high global inventories, and so were somewhat complacent in terms of acquisitions and stockpiling.
Now that Russia has shut its export channels for the immediate future, however, major importing nations have jumped to life and are now openly competing with one another for strategic access to wheat reserves outside the “breadbasket of Europe.”
This spike in importer interest has not only transformed wheat from a regional to a global marketplace, but has at the same time shifted consumer and producer behaviour from a short-termist approach to a longer-term focus.
Together, this global emphasis on longer-term strategic requirements looks set to continue fuelling heightened consumer nation jockeying, and should help near-term and deferred wheat prices avoid aggressive slumps for the foreseeable future.
Altogether, the latest batch of numbers from the USDA highlights that a shift in focus is underway from concerns about apparently abundant regional supplies to the potential scale of growing global consumer demand. As to how this consumer demand will hold up as crop prices push higher as a result remains to be seen, but for now the renewed emphasis on demand rather than supply should underpin crop values for the foreseeable future.
Gavin Maguire is a Reuters market analyst.
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