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ANALYSIS: Wasde more significant than it first appears

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The latest Wasde report may have lacked surprises in grains, but that does not mean that investors should overlook it completely.

 

The US Department of Agriculture’s latest flagship monthly briefing on world ag supply and demand was significant on two counts.

 

Price signal

First, it acted as a reminder that world grain and oilseed supplies remain snug. Sure, the Wasde did not trim expectations for US corn and soybean stocks as of the close of 2020-21, and unexpectedly raised estimates for global inventories.

 

But they remain among the tightest in years, and nor is there any sign of an immediate resolution, given the setbacks that South American crops are suffering from excesses of rain or dryness.

 

While China does seem have turned down the volume on its grain import orders, the world still requires a decent northern hemisphere harvest to return to a stockbuilding phase.

 

That will require prices to remain elevated for a while yet, to encourage farmers - and allow some risk premium should weather not co-operate with the drive to rebuild production.

 

Canada runs dry

Secondly, even if the headline readings did not show too many changes, there were some sprites, if not full devils, in the detail which should be noted.

 

One was a 300,000-tonne cut to the forecast for Canadian wheat stocks at the close of 2020-21.

 

While that may not sound much, it was enough to take the inventory figure down to 4.33m tonnes, the lowest since at least the 1950s. And that in turn raises questions over supplies of spring wheat, of which Canada is a particularly important producer and exporter.

 

No wonder May Minneapolis spring wheat futures, unlike winter wheat peers, closed on Tuesday at their highest level of the month, while later contracts showed even bigger gains – important in enhancing the grain’s appeal to farmers looking at relative crop pricing in deciding on spring sowings programmes.

 

In fact, December spring wheat futures outperformed their Chicago peers for only the third session in a month, managing to regain a small amount of the ground they have lost in the 2021 battle for acres so far.

 

‘Unprecedented volume’

And if the Wasde showed spring wheat now making a stand, sorghum made even further progress in its claim for space in US spring sowings programmes.

 

The USDA, while making no changes to its forecast for the 2020-21 US sorghum balance sheet, raised its forecast for average farmgate prices of the grain by $0.20 a bushel to $5.00 a bushel. That is, unusually, far more than corn, for which farmers can expect $4.30 a bushel.

 

And the department highlighted that “strong prices are expected to boost 2021-22 US sorghum planting in the spring”, against a backdrop of bumper export demand.

 

Outstanding sales for this season, at 2.8m tonnes, represent “the second-largest volume in history”, the USDA said, highlighting demand from southern China, “where animal production is concentrated and demand for feedstuffs runs strong,” and imported sorghum “has been commonly used as a substitute for corn in feed”.

 

And for 2021-22, “there are already 703,000 tonnes of [US export] sales on the books… an unprecedented volume of sales this early in the year”.

 

Plantings focus

As for where extra space might come from, cotton did itself few favours in endearing itself to farmers with its limit-down close for nearby contracts on Tuesday, with the new crop December lot slumping by 4.4%.

 

This when USDA officials are undertaking a farmer survey which will form the basis of a long-awaited report at the close of this month, on growers’ spring planting intentions.

 

Indeed, as investor attention turns increasingly to northern hemisphere spring sowings, acreage splits and planting weather will raise their influence on ag market moves.

 

But at least, from a bulls’ perspective, 2020-21 is still keeping its side of the bargain in looking to close on a tight note.

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