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ANALYSIS: September's Wasde report poses as many questions as provides answers

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The latest Wasde report from the USDA holds out little hope for most agricultural commodity bulls, with wheat perhaps bearing the greatest burden. But as with the Wasde report generally, one needs to take it with a pinch of salt.

 

The report anticipates that global wheat supplies for 2020-21 will result in the second consecutive year in which more than 1bn tonnes will be produced. It forecast total world wheat supply would be 1,070.3m tonnes, 3.3m tonnes higher than its August report, with the extras coming from higher crops in Australia and Canada, which, thanks to good weather, would have their third and second-highest wheat crops respectively. The CBOT front-month wheat contract has slid by more than 8% since its 21 January peak of $5.8207 per bushel.

 

Record beating crop

 

Set against this record-beating crop, consumption estimates were raised marginally, by 800,000 tonnes, to 750.9m tonnes, "primarily on higher feed and residual usage for Australia and Canada" said the report. Global trade was also pushed higher, to 189.4m tonnes, the biggest change being China - the world’s biggest wheat producer - which is now seen as importing 7m tonnes, the "largest China wheat imports since 1995-96" says the report. World ending stocks are seen at 2.6m tonnes higher than the previous month, at a whopping 319.37m tonnes, a new record, with China and India accounting for 51% and 10% of the total, respectively.

 

The report forecast that the higher wheat imports by China would be explained by "increased exportable supplies from Australia and Canada" - though why China would be building its already massive wheat stocks (about which there is considerable opacity) from Australia, with whom it currently has fraught diplomatic relations and is shunning Australian barley, is an open question.

 

Soybean stocks pulled down

 

The presented picture was more encouraging for soybean investors.The Wasde report put 2020-21 global soybean ending stocks at 1.8m tonnes lower, at 93.6m tonnes, partly on lower US stocks. US soybean production in the about to start harvest was put at 4.3bn bushels, 112m (about 303,000 tonnes or around 2.5%) lower than the August report. Globally available soybean exports for 2020-21 were put 900,000 tonnes higher, at 166.3m tonnes, partly as a result of the increased planting in Brazil; soybean exporters there are expected to continue benefitting from a lower local currency and stronger international prices.

 

The Brazil soybean crop for 2020-21 is seen as 133m tonnes, a fresh record. Brazil has exported 61m tonnes of soybeans in the first half of this year, a rise of 38% year-on-year, with 72% of them going to China, the world’s biggest soybean consumer, which is busily replenishing its African Swine Fever (ASF) affected pig herd. Wasde put Brazil’s soybean exports for 2020-21 at 85m tonnes; exports from Brazil to China are slowing as the 2019-20 harvest winds down, but US exports should start picking up, even though the US and China are scarcely on speaking terms. The front-month soybean contract has gained more than 26% since its low this year of $7.97 per bushel and today traded above $10, with longer-dated contracts also joining the $10 party.

 

Money managers positioned themselves ahead of the Wasde report, raising their net long in CBOT soybean futures and options by 11,300 contracts to 173,907 in the week ending 8 September from the previous week. This is the most bullish position for the time of the year since 2012.

 

Cotton confuses

 

Cotton meanwhile has perhaps seen its demand suffer worse than most other agricultural commodities, as consumers cut spending on clothing. The Wasde report says that the 2020-21 year will have lower beginning and ending stocks, with consumption lower in the US, Mexico and Brazil.

 

One surprise for this analyst is that imports and use for some of the world’s key apparel producers and exporters - such as Bangladesh, China, Turkey and Vietnam - have barely altered from the August report.

 

While the latest report puts cotton ending stocks for 2020-21 1.1m bales lower at 103.8m bales, (4.4m bales higher than in 2019-20), Turkey’s imports for 2020-21 are put at 100,000 480-pound bales higher (at 4.3m bales) in the September report than in August’s, while its ending stocks are put at 100,000 bales lower than in August, at 2.49m bales. Bangladesh, which is heavily dependent on garment exports, yet is still struggling to get its garment industry back to full output, was seen as importing 7.3m bales in August and that figure remains the same in the latest Wasde. Will Bangladesh’s cotton imports shrug aside the Covid-19 crisis?

 

With continuing paralysis in global apparel sales from retail stores, one might have expected a more substantial revision to overall and country-specific cotton estimates.

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