- When crush margins deteriorate, it will signal a shift from what has been an aggressive oilseed buying
- There is a little fresh news for wheat markets to digest going into the close of the year
- Quality spring wheat continues to maintain a sizeable price premium to the other wheat classes
The agricultural market focus at the end of the 2016 calendar and start of 2017 is shifting to several areas. South American crop prospects, year-end speculative index fund rebalancing, the approach of the key Jan. 12 United States Department of Agriculture crop report, uncertainties associated with the new U.S. leadership and the degree to which the broader investor surge recently saw in the equities can be replicated in commodities based on increasing inflation expectations.
Grain markets continue to be characterized by strong, even burdensome, supply conditions. That was highlighted earlier this month by the USDA projecting record large world ending stocks for soybeans, corn and wheat.
A situation of big supply being met by big demand amid profitable crush margins remains at work for both soybeans and canola
USDA: World ending stocks 2016-17
|USDA December, 2016||Average Trade Estimate||2015-2016|
Note: units in millions of tonnes
A situation of big supply being met by big demand amid profitable crush margins remains at work for both soybeans and canola. The time at which crush margins deteriorate, notably in China, will in turn signal a shift from what to date has been an aggressive oilseed buying program. That will be key in determining underlying price support under the oilseed markets. Any notable shift in Chinese soybean demand, inspired either politically (in relation to the United States) or economically (South American new crop production confirmed and cheaper priced) could signal a shift in winter season oilseed price trends.
There is not a lot of fresh news for wheat markets to digest going into the close of the year. But the USDA continues to remind us of large wheat supply availability. In its December supply/demand report, the USDA lifted its world wheat production estimate to a record large 751 million tonnes, up 6.6 million tonnes from last month’s report. Year-end stocks moved from a record large 252 million tonnes, up 2.9 million tonnes to highest stocks-to-use ratio since 1987 at 34 per cent.
Wheat price advances remains limited until exportable wheat surpluses in Australia and Argentina (where harvests are still underway) are exhausted or until the United States winter wheat crop breaks dormancy mid-March.
Quality spring wheat continues to maintain a sizeable price premium to the other wheat classes, but price spreads are already quite stretched. With a general turn higher for wheat markets, the spring wheat class will be meeting increasing headwinds.