Commodity market overview: September 2017

In September, USDA global wheat production estimates were revised slightly higher. Mainly due to better crop conditions in Turkey and Russia, estimates were raised to 744.85 million tons from 743.18 million tons in August. Based on the latest data, Russia is currently expected to be the top wheat exporter in the 2017/18 season year. Global wheat consumption is now expected to edge slightly lower from this year’s record of 738.7 million tons and reach 737.5 million tons next season year. Latest data are more bearish for global inventories, however, which are forecast to increase 16.5 percent to 263.14 million tons.

The September USDA report saw a downward revision in corn production for Ukraine, Russia and EU countries. As a result, global production is forecast to demonstrate a 3.7 percent year-over-year decrease to 1.03 billion tons in 2017/18. In contrast with forecasts for an annual consumption increase in August, global corn consumption was revised lower in September and is now projected to remain nearly unchanged at just below 1.06 billion tons. Consequently, global inventories are expected to demonstrate a strong 11 percent year-over-year increase to 202.5 million tons.

With soybean consumption continuing to increase, global crush in 2017/18 is expected to reach 300.7 million tons vs. the current year’s level of 288.5 million tons – a 4.2 percent year-over-year increase mainly driven by solid production yields and a record soybeans production of 4.431 million bushels. Global inventories are expected to slightly offset the balance and are currently projected to remain nearly unchanged at 97.8 million tons. With a forecast for a 3.4 percent increase in global exports, USDA expects the US soybean prices to average $8.35-10.05 per bushel in 2017/18, 10 cents lower year-over-year at the midpoint.

Global soybean meal production is expected to continue closely tracking domestic use in 2017/18, and is currently expected at 234.4 million tons – a 5.5 percent year-over-year increase from the current year’s level of 222.1 million tons. In the meantime, global production – projected at 236.6 million tons – will likely narrow down the production-consumption spread to 2.17 from 4.27 million tons a year earlier. However, despite the expected global ending stocks decrease – currently seen at 12.9 metric tons – the USDA lowered its pricing forecast from August and currently expects U.S. prices to average $290-330 per short ton next year.

Due to a significant expected decrease in harvested area, U.S. rice production is forecast to suffer a 20 percent decrease in 2017/18, with additional downward revisions for China and Bangladesh. Partially offset by increased production levels in India, Burma and Peru, global production is expected to reach 483.36 million tons next year, a minor decrease from this season year’s estimate of 486.39 million tons. Global consumption is projected to edge slightly lower to 482.5 million tons, raising the ending stocks estimate to 123.52 from 120.33 million tons estimated for the current season year.

Due to a strong decrease in U.S. production estimates, USDA projects the domestic stocks to suffer a 37 percent year-over-year decline in 2017/18, fueling a significant increase in domestic price estimates: “For the third consecutive month, U.S. season-average price forecasts (SAPF) for 2017/18 for both classes of rice and for both growing regions were revised up. Like last month, this month’s upward revisions were largely based on tighter U.S. supplies, increases in both reported monthly cash prices and weekly spot prices, and expectations of prices during the remainder of the 2017/18 market year. Forecast 2017/18 SAFPs are well above 2016/17 SAFPs for both classes of rice. The 2017/18 long-grain season-average farm price is projected at $12.00-$13.00 per cwt, up 50 cents on both ends from the previous forecast and well above the slightly revised $9.62 in 2016/17. […] The California medium- and short-grain 2017/18 SAFP is forecast at $15.50-$16.50, also up 50 cents on both ends of the range from the August forecast and up from a revised $13.60 in 2016/17.”

The September USDA report saw an upward increase in global cotton production estimates, raising the 2017/18 estimate to 120.8 from 117.3 million bales in August. Mainly driven by continued cotton demand growth in the Asian region, world cotton consumption is projected to demonstrate a 3.6 percent year-over-year increase and reach 117.75 million bales during the next season year. Ending global stocks are forecast to increase from the current multi-year low of 89.6 to 92.5 million bales. Consequently, latest U.S. pricing estimates are slightly below the current price of $0.68 and are forecast to trade in the range between $0.54 and $0.66 per pound in 2017/18.

With no significant data updates on Coffee in September, Brazilian crop harvesting period is nearing its end. As a result of excess rain and beetle pests, country’s Arabica production came in below estimates and resulted in slashed crop estimates by Conab, Brazil's official crop bureau. Conab currently projects domestic production at 44.77 million bags in 2017/18, lower by 790,000 from the previous estimate. Despite the upward revision totalling 568,000 bags, Brazilian Robusta crop is forecast at 10.71 million bag and is expected to demonstrate its 2nd weakest result in a decade. Despite slightly tempering the upbeat coffee production expectations, its global supply balance remains relatively bearish. Signalling weaker sentiment, large traders have been net short the coffee futures contract since the middle of August.

Sugar prices remain in a downtrend due to bearish supply fundamentals, with no USDA data updates in September. Reports of better crop conditions in India and the abolishment of the EU sugar quotas – resulting in a significant inflow of new sugar exports – continue to depress the soft commodity. In the meantime, recent price action was also significantly influenced by the reports of a production rebound in Brazil. According to a cane industry group Unica, Brazilian Centre South mills – representing more than 90 percent of the total Brazilian output – produced a total of 3.13 million tons in the first half of September, 50 thousand tonnes above the S&P Global Platts consensus estimates.