The November USDA Report surprised, while also delivering against expectations. The surprise came from a lift in global wheat supplies with a lift in production and in opening stocks, while at the same time reducing the Australian crop as expected, and also lowering production estimates for Morocco, Pakistan and Ukraine. However, Canadian estimates were unchanged.
The change to global stock and production numbers is more annoying than of real substance, because it involved changes to Chinese data, with some previously ignored government stocks being included in the data across all grains. It is largely irrelevant though because China does not export wheat, and has, at the moment, a fairly low but stable level of imports.
When China is excluded from the production data for this season, global production was down 1.9 million tonnes from the October estimate, led by a 1mt downgrade for the Australian crop, down to 17.5mt. Some would suggest that this is still too high, but it is really hard to gauge because of the late rains in WA and NSW, and the final impact of dry conditions elsewhere, along with frost and acreages taken out for hay.
Global exports were reduced as well, down 1.6mt, mainly on the back of lower Australian exports. Our exports are now projected at 11.5mt, which will be the lowest since 2007/08. Presumably it will be lower feed wheat exports, which importers will cover with other feed grains from other exporters.
The closely watched US figures were basically unchanged, apart from a small lift in domestic use to reflect the forecast lift in acreage to be planted to wheat this year. The final US winter wheat acreage is still uncertain though because of the delays to planting from the wet weather, which has slowed planting, and slowed the soybean harvest. The slow soybean harvest has stopped some acres being planted straight back to winter wheat.
Importantly for the US, their export projections were left unchanged at 27.9mt, reflecting a 3.38mt year on year increase. This will remain the focal point for the market as it watches to see if that target will remain realistic given the slow start to exports thus far.
So, it will be the pace of US exports, and projected exports, that will remain the focus for the US futures markets. The markets will continue to work to keep US wheat price competitive against Russian wheat. For now that indicates that futures will remain under pressure until there are signs that the pace of Russian exports is slowing.
US wheat prices will also face a headwind from the US dollar. Although the US did not raise official interest rates this month, they have indicated that they remain on track for future increases, which in turn will keep upward pressure on the value of the US dollar.
As long as the Australian dollar declines against a rising US dollar, we might not see much impact from falling futures in our market. However, every time it looks as though the China/US trade spat might be resolved, our dollar rallies because of our strong trade links with China and the prospect of a lift in Chinese economic activity.
Seasonally we also tend to see weakness in US wheat futures going through November and into December. That may play out again this year.