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June 14, 2018

Grain markets have limited margin for error

The USDA reminded the world on Tuesday (June 12) what has been feared for months and awaited for several years by producers: tightening supply and demand balance sheets.
In its latest WASDE report, the US agency pegged the combined wheat and coarse grain ending stocks to 447.73MMT, of which, 266MMT of wheat and 155MMT of corn/maize, or more than 45MMT lower than in 2017/18.
For wheat, the 266MMT global ending stocks do not sound too worrisome but digging further, the stock-to-use ratio of the top eight exporting countries could be the lowest since the 2007/08 campaign with lurking risks in Australia.
Consequently, it was not a surprise to see a sharp rally in global prices when the USDA cut its 2018/19 Russia wheat production forecast by 3.5MMT to 68.5MMT from a month ago – the last time the USDA had been so aggressive was in 2007/08. For maize, the US crop, which is off to a very good start, will have to perform this summer to keep world stocks afloat, with an expected steep 38MMT (or around 20 per cent) fall in 2018/19 according to the USDA. The downside risk for wheat prices remains limited for now.