Farm Tender

Mecardo Analysis - The final WASDE for the year

By Andrew Whitelaw | Source: CME, ASX, Mecardo. 

The US Department of Agriculture released their final World Agricultural Supply and Demand estimates (WASDE) for 2019. Although the WASDE receives plenty of criticism (often from me), it is an important tool for the industry.

The updates to the WASDE in the last quarter of the year tend to be less explosive on pricing, as the potential changes are limited. The world’s crop is largely a known factor, and it is really a case of tinkering around the edges.

In terms of production, the changes were minimal with Australia receiving a 500kmt (or 2.86%) downgrade from the November update. There were however changes to consumption with Australian domestic demand estimated to be 500kmt higher at 9mmt, and Canada also up 300kmt to 9.3mmt.

1mmt was added to European end stocks, as Russian supplies continue to outcompete. There are questions related to their ability to continue to compete in the coming months, as export pace has been particularly strong. In recent days tenders won by Russian supplies have been higher than the last tender (+$5), which may indicate that Russian sources are becoming depleted.

At present global ending stocks are down 4.2% (table 1) on last season and remain the second highest on record. However, it is important to note that 54% of global wheat stocks are held within China (figure 1), the highest level on record. These stocks are very unlikely to be available to the global trade.

2018-12-13 Grain 2 2018-12-13 Grain 3

The pace of Russian exports is having an impact on end stocks. Russian end stocks are projected to decline to 5.4mmt, a fall of 6.5mmt year on year (figure 2). This will leave little buffer for any production issues as we move into the 2019/20 season.


2018-12-13 Grain 1

What does this mean?
Production is set for 2018, and the drivers of pricing in the coming two months are likely to be from trade flow. When Russian pricing becomes less competitive, we will see demand move to other destinations (likely US).

This has the potential to provide the impetus for improved pricing in the first half of the year, however upside is relatively limited.

The real drivers will be production risk as we move into the 2nd quarter as the northern hemisphere weather risk market commences.