Global grains weather
Poor weather in the Australian wheat region may lead to further cuts in production estimates for this year’s crop; this is beyond the recent cut a couple of weeks ago when ABARE dropped their forecast by nearly a third to 15.5 mmt. The vegetation NDVI image below shows the decrease in crop conditions in New South Wales and Western Australia vs. last year. Further, suboptimal weather in Europe and Canada had been putting additional upward additional price pressure on wheat. ABARE does not anticipate stocks falling much lower, but levels are approaching record lows. In spite of some changes in the short term pattern which will bring a little more rain to eastern and western Australia, these changes will come too late for this year’s crop. Looking towards next year, the current stocks and demand situation will weigh heavily on acreage decisions during planting. In the grains complex, the bullish news in wheat should be countered by bearish fundamentals in corn and soybeans. Corn and soybeans have been subject to heavy volatility this year, some of which is not supported by the weather. Overall, conditions in the US corn and soy belts were very favorable for both crops this summer, although it was a slightly better pattern for corn. The additional demand from the biofuels sector, combined with uncertainty on crop sizes due to planting swings lead to speculation driving markets well over their fundamental values. The significant increase in corn acreage certainly did cut into soybean acres, but the weather pattern has been supportive, and weekly crop condition reports from the USDA have confirmed the favorable conditions in the major growing states. Further, demand estimates for both crops have dropped off, largely due to reduced grain demand from the feed sector. At this stage, supplies look healthy as we approach the midpoint in this year’s harvest. The weaker $USD is also likely to curtail exports, so stocks may have the chance to build further. These reasons mentioned above combined with the anticipated return to a favorable weather pattern in Brazil should ease fears among traders, and the short term outlook is bearish for corn and neutral to slightly bearish for soybeans. The Weather Trends outlook is starting to point towards weekly improvements in the development of rainfall in Australia. While this won’t do much for helping growers this year, it will help recharge soil moisture for the following crop cycle.
