August WASDE shocks the market

August, 12 WASDE report was particularly bearish for wheat and corn markets. On Monday futures prices lost 5.6% and 6.1%, respectively touching the lowest level since mid-May, reports UkrAgroConsult.

2019/20 wheat supplies were reduced primarily on the lower production such countries as Turkey, EU, Kazakhstan and Russia. Partly offsetting were increases for the US, Argentina and Ukraine.

Nonetheless, in 2019/20 MY world wheat production is expected at record level – 768.07 MMT (+38 MMT to 2018/19 MY).

But at the background of the record crop, the USDA experts continue to downgrade the world wheat export forecast. In the new report the estimate was cut by 0.48 MMT to 182.6 MMT. Let`s recall that in July this number was reduced by 2.3 MMT reflecting lower demand than previously expected.  

World wheat ending stocks were reduced by 1 MMT (285.4 MMT). But the new forecast is 10 MMT higher than in 2018/19 MY and remains the all-time high pressuring the wheat futures in Chicago.

Additional pressure comes from the neighboring corn market which considerably supported wheat futures during May-July.

The updated WASDE estimates on corn (especially the US corn) put the market into shock. Unexpectedly, the US corn production was raised in 2019/20 MY (+0.65 MMT to 353.1 MMT) and the ending stocks were steeply increased (+4.33 MMT). Moreover, at the expense of upward corrections for China, EU, Ukraine world corn ending stocks were raised by 8.8 MMT to 307.7 MMT.  

Despite the slowest on record pace of corn seeding in the US and the record prevent plan data, the USDA experts increased the estimate of the US corn yield to 169.5 bpa from 165 bpa in July report. The estimate of corn acreage appeared to be much higher than market expectations – 90 Ml acres (91.7 Ml acres in July; 88 Ml acres – average market expectations). Along with that, domestic consumption was reduced (primarily for ethanol use) as well as the US export forecast (-2.54 MMT due to the higher competition from the South America and Ukraine).

Many market participants aired the opinion that Brazil, Argentina and Ukraine will not be able to cover world corn demand assuming the awaited steep decline in the US corn export potential. So far, the August WASDE numbers fully contradict market ideas. 

USDA estimates of the US production and ending stocks, Ml bushels

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