Positive USDA report sparks rally

The USDA report was positive for wheat, with a sharp lift in global consumption more than covering a lift in production estimates. Global wheat stocks declined by 3.95 million tonnes from the November estimate.

Most of the production increases were accounted for by Australia (up 1.5mt to 30mt). Smaller increases were reported for Russia (500,000 tonnes) and Canada (200,000t), with all three countries set to have their second largest production years on record.

However, consumption surged by 5.1mt, with increases for China, Australia and the EU. Normally an increase in China might not have much impact, but it is underpinning a lift in their imports to 8.5mt, which would be the largest since 1995/96. Pakistan has also lifted their imports to be their largest since 2008/09.

If we exclude China from the global numbers it is not quite so bullish, with non-Chinese global stocks declining by a more modest 1.45mt since November. With the Australia crop continuing to get larger, this decline in stocks may evaporate over time.

Meanwhile Russia also continues to fuel the market. There is talk of an export tax as well as a quota, to try to limit the flow of wheat out of the country. Uncertainty about the 2021 harvest continues to see the Russians keen to hold back more wheat from their bumper 2020 harvest.

Russia's leading crop forecaster has further reduced their estimate for 2021 by 4.2mt, down to 76.8mt. This compares to 85.5mt from this year's crop.

Poor crop conditions in Russia are likely to see yields come in below trend, while the acreage hit by winterkill could be close to double that of 2020.

No one was expecting such a sharp turnaround for wheat, but there is no guarantee that the gains offshore will transfer through to the Australian market. Last Friday prices across SA, Victoria and NSW ranged from $274.50 a tonne to $283/t, still down $5 to $9.50/t on the week before despite a $A7/t lift in the $A value of CBOT futures before Friday night's gains.

A huge crop, and willing grower selling to date, has probably drained our traders of working capital and squashed their need to keep buying at the moment. Export capacity is full until June, and local end users have more than ample supplies of wheat and barley to choose from.