CHICAGO (Reuters) - Whenever the U.S. Department of Agriculture updates supply and demand outlooks, adjustments to U.S. corn and soybean production typically steal the spotlight from other items on the global balance sheets at this time of year.
But since the market expects marginal changes to these usual favorites, elements outside the United States – particularly in wheat – may be the ones moving the world balance sheets this month.
The U.S. Department of Agriculture will release its monthly supply and demand estimates along with its U.S. crop production report at noon EDT (1600 GMT) on Thursday. Analysts predict on average that the U.S. corn and soybean harvests will each rise by fractions of a percent.
At the world level, the trade expects USDA to slightly trim 2017/18 global ending stocks for wheat, corn and soybeans, the latter to the greatest degree at 1 percent.
There could be some opposing movement in the grains, however, as adverse weather may have hurt Southern Hemispheric wheat crops. But losses could be offset with a potential supply expansion, especially in India, and China’s massive inventory always has the power to swing the wheat and corn balances.
And although adjustments to U.S. corn supply are expected to be minor, possible tweaks on the demand side could prove more influential to domestic stocks.
Earlier this month, USDA’s attaché in New Delhi increased India’s 2017/18 wheat crop on better-than-expected yields to a record 98.4 million tonnes from the previous estimate of 96 million. The latter figure matches the USDA’s latest official estimate.
At the same time, the attaché lowered expected imports for the current marketing year ending March 31 to 3 million tonnes from 4 million, citing weaker local prices. USDA officially has 4 million tonnes in its balance sheet.
India is the second-largest wheat producing country though it consumes its entire product and is insignificant for exports. However, it does import a modest quantity of the grain from time to time, and the wheat market had been depending on its business this year.
Also earlier this month, news began swirling that India’s government was considering raising the wheat import tax to at least 20 percent from the current 10 percent to encourage domestic sowing and curb cheap imports. This had many market-watchers concerned that India’s actual wheat haul could fall considerably short of USDA’s expectations, driving up record global wheat supply even further.
USDA’s forecast for India wheat imports is likely to come down on Thursday, but not because of an anticipated import tax hike since there has been no official decision as yet. This means Indian imports could be reduced even further in the future beyond any possible cuts this week should the duty be revised.
The 2017/18 Russian wheat crop has been on the move ever since it was initially pegged at 67 million tonnes in May. USDA’s estimate has risen between 3 percent and 8 percent each month since then.
But it will be important to see whether the crop has topped out at 81 million tonnes – last month’s estimate and an unprecedented volume for the Black Sea country – or if there is even more upside, or downside.
The U.S. wheat crop will change on Thursday as USDA finalized the harvest volume on Sept. 29. But the upward revision was so slight that the boost to total 2017/18 U.S. production of just 37,000 tonnes will be negligible in the world picture.
The Australian wheat harvest is a candidate for USDA cuts on Thursday as extremely dry weather has persisted all season. A recent analyst poll from Reuters suggests that the country’s crop, of which up to three-quarters is typically exported, may fall to 20.15 million tonnes.
This is below USDA’s latest peg of 22.5 million tonnes, below the official Australian outlook of 21.64 million tonnes, some 40 percent below last year’s record harvest of 35.56 million tonnes, and would be the country’s smallest wheat production volume in a decade. The bulk of the harvest will take place in November and December.
In Argentina, an important supplier, heavy rains in recent weeks and months have drawn concern that the area and/or yields could be reduced as a result. USDA has yet to recognize any possible downside to the crop, though, as its estimate of 17.5 million tonnes has not changed since June.
And it still might be a while before any impacts are revealed. The South American country typically reaches the halfway mark on its wheat harvest in mid-December. The agency’s first official estimate of 17 million tonnes was published back in May.
Although significant changes to China’s grain picture are not necessarily anticipated for Thursday, it is good practice to check in on its balance sheet each month, especially when evaluating adjustments to global stocks.
China holds a large portion of the global wheat and corn inventory but trades very little in those markets, so those supplies are effectively unavailable to the rest of the world. Especially within the last couple of years, much of USDA’s shifting of global corn and wheat stock figures each month has been directly linked to changes in China’s supplies.
But in the 2017/18 year, USDA’s forecasts for corn and wheat ending stocks in the East Asian country have remained practically steady from the start, and that has been relatively uncommon in previous years. Meanwhile, projections for global ending stocks have risen 4 percent for corn and 2 percent for wheat since May.
As of last month, China was expected to be holding 40 percent of the world’s corn supply about a year from now, which would be its lowest share in seven years. However, lack of reform on the country’s wheat practices pushes China’s projected wheat share to 48 percent by mid-2018, the largest in nearly two decades.
Although USDA has already assumed a near 20 percent drop in U.S. corn exports between the 2016/17 and 2017/18 marketing years, the new season that began on Sept. 1 is off to a very slow start. If the sluggishness continues, the full-year expectations of 1.85 billion bushels could eventually be scaled back even further.
Weekly export inspections have failed to meet market predictions thus far. In the first five weeks, actual inspections fell below the trade range of estimates three times. In the other two weeks, inspections landed in the lower half of the range.
Bookings for 2017/18 are also lackluster and close to the smallest volume to date within the last decade. The pace in early 2015/16 was actually a little slower and continued that way through the first half of the year, and as a result USDA steadily reduced projected U.S. corn exports each month that year by a total of 11 percent between November and February.
(The opinions expressed here are those of the author, a market analyst for Reuters.)
Editing by Matthew Lewis