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Morning Markets: Wheat loses post WASDE gains in early Monday trading

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Last Friday’s monthly WASDE report from the USDA, expected to set the tone for the new year’s trading, reduced the wheat and corn areas but made little change to soybean figures.

 

But early Monday business saw wheat lose some of last week’s gains while corn and soybean futures were up - the latter sharply with a resumption of US: China exports likely after the expected Phase 1 trade deal agreement this week.

 

The January WASDE cut US wheat plantings and so production prospects for 2020 harvest, which supported wheat futures. However, the hard red wheats (HRW) grown in the southern regions were more favoured than the spring wheats grown in the more northerly states.

 

With analysts expecting corn to replace some of the lower wheat volume in animal feed manufacture, corn futures rose too in the wake of the WASDE, despite an increase in this year’s corn harvest estimate. But soybeans were little changed – an increase in the 2019 crop yield was balanced by a cut to the harvestable area.

 

Lowest wheat area for 110 years

 

The CBOT January SRW contract gained 2.25 cents/bushel on Friday to close at $5.64½/bu but was trading at $5.62¼/bu early on Monday, returning to last Thursday’s value.

 

The HRW March contract, which ended Friday at $4.94/bu was down to $4.93½/bu on Monday morning.

While the WASDE raised the US winter wheat area to 30.8 million acres (when trade estimates were around 30.66m acres), the total masks a fall in the HRW acreage to 21.8m acres which is 3% lower than the previous year, and under trade predictions of 22.09m acres.

 

Conversely, the USDA economists have pencilled in a 5.64m acre soft wheat area, when traders had anticipated 5.12m acres.

 

European analyst Agritel observed that the total US wheat planted area would be the lowest since 1909, adding that the USDA reduced stocks with the eight main exporters by 1.97m tonnes to 59.4m tonnes, “partly explaining the recent strength of wheat prices”.

 

But Kim Rugel of analyst Benson Quinn notes that a further analysis of the WASDE data reveals that the “core HRW acres are unchanged from last year - that would be KS, NE, OK and TX. While soft wheat acres were up in the fringe eastern states with SRW acres down in IL, IN, MI, MO and WI.”

 

Smallest US wheat stock since 2010

 

She added that quarterly US wheat stock figures also favour the SRW “with disappearance sharply higher than expected, despite a market that seems to be well over-priced”. The December 1st all wheat stock, at 1.834 billion bushels is the lowest since 2010, against trade projections of 1.917bn bushels and the prior year’s 1.999bn bushels.

 

“Chicago wheat sold off on the big SRW seeding increase but eked back higher on the fronts at the close,” said Ms Rugel. “KC and Minneapolis held positive trade through the report and closed at high side of the daily range - KC March closed at a 5-month high and up 19 ¾-cents on an outside range higher week. Minneapolis closed up 10 ¾-cents for the week.”

 

The WASDE lifted the average corn yield by 1 bushel per acre from the previous month’s report to 168 bpa which was higher than trade estimates. While the USDA reduced the planted and harvested acres figures, the higher yield more than offsets the lower area.

 

US corn production is projected to be 13.692bn bu, an increase of 31m bu from the previous month and 180m over the trade prediction. But the USDA has announced a resurvey of corn production in northern states due to the late harvest, with 8% still to be gathered.

 

The March Chicago corn contract closed 2.5cents/bu higher at $3.85¾/bu Friday and was up to £3.87/bu in early Monday business.

 

China trade hopes support bigger soy crop

 

Friday’s WASDE increased average US soybean yields by 0.5bpa to 47.0bpa but reduced the harvestable area by 600,000 acres. Therefore, projected soy production rose by 8m bu over the month to 3.558bn bu, which is 46m bu higher than the trade had expected.

 

A bigger crop and unchanged 275m bu carry over (when the trade expected a 50m bushel end stock cut) might have been expected to depress soybean prices. But Ms Rugel said export projections of 1,775m bu and anticipation of Chinese demand for US resurfacing after the expected signing of the anticipated Phase 1 trade deal between the two parties later this week in Washington were supportive to values.

 

The nearby CBOT soya contract ended last week at $9.35/bu, up 1.25 cents/bu on the day, but was trading at $9.38½/bu as markets opened on Monday.

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