Bearish WASDE weighs on grains, rand still supportive

FNB wheat predictions
  • International markets: After a bearish start to last week on the back of China’s retaliation to the latest round of US further tariffs on Chinese imports, grain and oilseed prices closed the week on a softer note in the maize and wheat markets.  The increased volatility in currency markets due to talk of China devaluing the Yuan weighed heavily on grain and oilseed prices.
  • This week saw losses across the grain and oilseed futures following the release of the USDA’s World Agriculture Supply and Demand Estimates (WASDE) report which showed higher than expected production and yield forecasts. The 2019/20 world maize production and ending stocks estimates were raised by 3.1 and 8.8 million tons respectively to 1.11 billion and 307.7m tons. The US production estimate was increased by 8.5% from last month to 353.1m tons as the reduction in planted area was more than offset by better yields. The US accounts for almost 32% of the total world maize production.
  • Elsewhere, Ukraine is expected to produce a record 36.5m ton which is 7.4% higher than the July 2019 estimate. Interestingly, the USDA expects a rebound in South Africa’s maize production to rebound to 14m tons during the 2019/20 season. The production outlook is tight for wheat and soybeans, coming in down by 3.4m and 5.1m tons respectively tons month-on-month (m/m) at 768.07 and 341.83m tons. Wheat ending stocks were also tight, down 1.1m tons m/m at 285.4m tons. Soybeans stocks fell by 2.7% m/m at 101.7m tons.
  • In the futures markets, US maize futures extended last week’s losses across the board yesterday with the nearby Sep 19 contract falling by 4.9% week-on-week (w/w) at US$151.77/ ton. Maize for Dec-19 delivery fell 5.3% w/w at US$154.68/ ton.
  • Wheat futures got off to a weak start this week despite the tightening production outlook. The Dec-19 SRW and HRW wheat futures prices fell by 4.6% and 8.1% respectively w/w to close yesterday at US$173.28/t and US$144.11/t. The yearly trend in average weekly wheat prices remains downwards as reflected in figure A.
  • Soybeans saw the biggest losses despite production cuts largely due to demand concerns as China moved to block the importation of US agriculture products. Soybean for Nov-19 and Jan-20 delivery fell by 10% and 7.8% respectively w/w. Soyoil was however the exception, gaining 7.6% w/w for both the Sep-19 and Dec-19 contracts at US29.66 c/lb and US30.05 c/lb.
  • South African market: Maize futures continued to post good gains driven by the modest reversal in rand fortunes despite weakness on the international market. The nearby Sep-19 and Dec-19 maize futures gained 5% respectively w/w and above the R3,000/t level at R3,065/t and R3,159/t.
  • Wheat futures also strengthened on rand weakness despite the bullish production outlook as conditions continue to turn for the better in the Western Cape. The nearby Sep-19 closed up 2.5% w/w at R4,597/t while the farthest contracts lifted 1.5% w/w to R4,574/t for the Dec-19.
  • The oilseed market extended good gains on increased support from the weaker rand exchange rate. Sunflower gained 6.4% and 5.8% respectively for the nearby Sep-19 and Dec-19 at R5,592/t and R5,727/t. Remember the 2018/19 sunflower planted area was cut by 14% y/y and the July CEC harvest estimate indicated a 24% y/y decrease in production. Soybean prices modest gains across the board with the Sep-19 and Dec-19 delivery contracts settling at R5,792/t and R5,881/t, up 5.7% and 5.5% respectively w/w. While both the planted soybean area and harvest estimates were slashed by 7% and 24% y/y respectively at 730,500 ha and 1.17 million tons, production will still be third record in three consecutive years.
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