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Ag News

Mecardo Analysis - WASDE Whammy on Corn

  • By: "Prime" Ag News
  • Jun 15, 2019

This article is bought to you by Stocka

By Angus Brown | Source: USDA.

The United States Department of Agriculture (USDA) released their World Agricultural Supply and Demand (WASDE) forecasts on Tuesday night. While wheat and oilseed production remained largely unscathed by wet North American weather, corn has suffered severely.

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There has been plenty of news around concerning the wet weather in the US, which has now delayed corn sowing to such an extent, that the window is closed. The USDA has obviously taken heed of this and made a massive 9% cut to US corn production in their June WASDE report.

The USDA also cut 9% from Canada’s corn crop, but the total amount pales in comparison. Canada’s corn production is expected to fall 1.4mmt, to 14mmt. Not insignificant, but the US, which is the worlds biggest corn producer by far, is expected to lose 34.2mmt. To put this in perspective, the US is expecting Australia’s entire wheat crop to come in at 22.5mmt. The rain has wiped out the equivalent of 1.5 times our wheat crop.

The decline in world corn production came in at 3.1% and was partially offset by a small reduction in consumption (table 1). World corn ending stocks have taken a 7.7% hit, and compared to last year, they will be 10.7% lower.

2019-06-13 Grain 1

Needless to say, the decline in ending stocks has had a significant impact on the corn stocks to use ratio. The May WASDE pegged 19/20 world stocks to use at 27.5%, now down to 25.6%, a six-year low.

There was little change in wheat production and consumption estimates. One of the major changes was the increase in US wheat consumption. With the smaller corn crop, more wheat is expected to be used, and this led to a 6% fall in US wheat ending stocks.

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Figure 3 shows that despite more wheat being used in the US, wheat production is still going to easily outstrip consumption. With a stocks to use ratio of 38.6%, there will be no shortage of wheat in the global market this year.

2019-06-13 Grain 2 2019-06-13 Grain 3

Key points
   * The WASDE report cut US Corn production by 9%, seeing stocks and stocks to use fall.
   * Wheat supply and demand was largely unchanged, with a large crop expected.
   * Lower corn stocks should provide support for corn and wheat prices for the coming year.

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What does this mean?
The release of the WASDE saw corn rally 2%, but it didn’t reach the new highs seen last week, as much of the decline in stocks was priced in already. Low corn stocks are obviously seeing prices much higher than in recent years, and they are the only thing supporting wheat.