- In January’s WASDE report, wheat and soybean ending stocks projections were revised higher on higher expected output.
- Projected corn ending stocks were revised lower on higher projected demand.
- The revisions to the outlook for wheat and corn clearly caught the market by surprise.
On Friday, January’s World Agricultural Supply and Demand Estimates (WASDE) were released by the US Department of Agriculture. Overall, the projections for the 2013-2014 marketing year were once more revised in a more bearish direction.
Notably, wheat and soybean world supply projections were revised up by 1.5 and 2.3m tons, respectively, on the back of higher expected output. Projected world corn supplies were also revised up following an upward revision to world production. On the demand side, the most notable revision was to the projected world corn use, which was revised up by 2.9m tons. Projected world wheat consumption, on the other hand, was revised down by 1.1m tons.
On balance, the report was bearish for wheat and soybean as projected world ending stocks were revised up by 2.6 and 1.7m tons, respectively. In contrast, the report was bullish for corn as projected world ending stocks were revised down 2.2m tons following the higher expected world consumption.
The question going forward is whether the period of positive surprises on the supply side is coming to an end. The higher projected demand for corn in January’s report clearly caught the market on the wrong foot - corn prices jumped 5% following the release. On the other hand, wheat prices dived 2.5% following the higher projected output.
The grains market balance is set to shift upwards in the 2013-2014 marketing year as supply increases are expected to outpace demand growth. This has likely now been factored into prices, which could be reaching the bottom following a near year-long slide. Furthermore, prices will likely become more sensitive to negative surprises on the supply side, where sudden weather changes, as always, remain a risk factor – the early January polar vortex freezing the US was a reminder of this. Both the corn and wheat market are currently in contango.
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