Post-USDA report questions
As usual, this week’s USDA reports answered questions and created more questions in traders’ minds.
The USDA was aggressive in lowering the world wheat crop and trying to account for where wheat importers are going to get wheat supplies in the coming months. The US, which fortunately has a large wheat crop, will be a clear winner, as US exports are forecast to jump 319 million bushels from the previous year. Even with this increase, carryout is forecast at 952 million bushels, still incredibly large.
Remember a lot of the wheat that was exported in the past from the Black Sea (mostly Russian, but also Kazakh and Ukrainian) was feed wheat. So when importers are looking at where to get supplies, they are also considering WHAT to buy. There are coarse grains, the most obvious one being corn, that could be purchased (cheaper) than wheat. So the USDA increased corn exports in this report. Here too, the US will be the clear winner.
Feed use of wheat and coarse grains was not lowered by much—only one million metric tons (mmt) of each. There is no concept yet of price rationing feed use. Other domestic use of wheat and coarse grains was only lowered one mmt of each—again no significant rationing is predicted.
Are world supplies adequate enough to keep behavior stable? Or maybe price no longer is a great influencer of behavior? The very tight years of 2006-07 and 2007-08 in wheat also make one wonder if it takes two years before usage changes. Also, countries with historically great concerns about food supply (think China and India) have much larger stocks at this time versus 2006-2008.
The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.