Grain market traders are waiting today for estimates of global supply and demand for agricultural commodities, the US USDA's WASDE report. The report will be published at 05:00 pm BST. Wheat contracts in Chicago today have almost completely erased yesterday's nearly 4% gains and are trading more than 1.5% lower, in anticipation of the report.
WHEAT
- U.S. wheat supply estimates are likely to be revised upward, but it is unclear whether they will be as high as research agencies and the market expect. Dow Jones, for example, expects U.S. winter wheat production to be 1.307 million bushels in June, compared to the 1.278 million bushels estimated in May, which would be a five-year high.
- In contrast, production of winter wheat 'hard red' (HRW) is expected to be 724 million bushels against 705 million estimated in May. The SRW variety is expected to amount to 353 million bushels in June, compared to 344 million previously, while the estimated supply of white wheat is expected to remain largely unchanged at 228 million bushels in June.
- The latest NASS report indicated that the quality of the U.S. crop remains excellent, but was revised slightly downward, with 47% of the crop at high or very high quality, up from 49% estimated previously. The overall crop rating was down very slightly.
- Dow Jones projects that US wheat production will reach 1.887 billion bushels in the 2024-25 season, leading to 782 million bushels of ending stocks - the highest in four years. Global stocks, on the other hand, will be watched very closely, as frosts in May and the subsequent drought in Russia depleted yields - particularly in Russia and Ukraine. In May, the USDA estimated this year's wheat production in Russia at 3.23 billion bushels (88 million tons), but the latest Sovecon report indicated that Russia itself had lowered its expected production to 2.97 billion bushels (80.7 million tons) and opened the way for further downward revisions.
In addition to the Russian and Ukrainian markets, weather conditions in the U.S. appear to be an important factor that could favor wheat prices at the moment. A change in forecasts in the Midwest region could hit the crop if the heat wave currently being observed in the U.S. extends to key states, for the wheat crop; while at the same time, rainfall forecasts are quite low. On the other hand, harvests are currently very successful and the quality of the crop in the US is high, compensating traders for upside risk caused by lower production in Russia.
WHEAT (H1)
In a scenario of high U.S. supply forecasts and no significant changes for global production, WHEAT contracts may seek to erase the upward gap and test $600 per bushel.
Source; xStation5
