Last week’s USDA Report gave their first look at supply and demand for the 2017/18 season. The report has given direction to the market, but there was always a risk an unexpected set of numbers, one way or the other, would trigger a sharp price reaction.
The key parameters for wheat were whether world and US stocks for both wheat and corn would begin to come under control. The answer to both was yes. Stocks are not expected to keep growing, and should in fact retreat a little over the course of the next 12 months.
The key US wheat market should see lower wheat supplies this year against lower production. With exports expected to remain close to 2016/17 levels, that should also drive a fall in wheat stocks from 31.55 mill tonnes to 24.86 mill tonnes. That still leaves US wheat stocks uncomfortably high, but should be the start of bringing them under control.
Ongoing low wheat prices are unlikely to spur a rebound in wheat acreage in the US over the foreseeable future, and while good seasons may slow the reduction in US wheat stocks, the direction seems to be set.
One issue for wheat is consumption, with cheap corn limiting the growth in use for feed. This is a global issue as well as within the US, and is keeping wheat prices at feed grain levels rather than at human consumption premiums.
The US corn crop is expected to be down from last year’s record, but on the negative side, exports are likely to be lower. US corn stocks are still likely to fall though, so that will help the price trend being set for wheat as well.
The global figures for wheat do not look as encouraging, with only a modest drop in global wheat supplies (stocks plus production), despite a 15.71 mill t drop in the size of this year’s crop. Global wheat stocks are still set to rise by 2.94 mill tonnes.
As usual though, this picture is misleading. The lift in stocks in China is pegged at 17.1 mill t, leaving a drop of 14.26 mill t outside of China. Stocks outside of China are predicted to get down to 130.3 mill t, which is very close to the lowest level of stocks since 2012/13 and then 2008/09.
The key for wheat this year is the forecast drop in production. From last year’s record crop of 753.09 mill t, we are expecting a 737.48 mill t crop this year. Big reductions are forecast for the US and Australia, with a combined fall of 23.32 mill t. The former Soviet Union will add another 9.23 mill t to the downside, with Canada’s crop also expected to be down 3.35 mill t.
These are large production falls from four of the major exporters, with only the EU expected to see an increase in output, with a projected lift of 5.53 mill t.
The big mover to the upside in output is India, where production is expected to rebuild by 10 mill t. However, they may remain as net importers after the sharp rundown in stocks seen last year.
While the current projections for 2017/18 should prevent prices from falling to the lows seen last year, the numbers are still not tight enough to trigger a sharp sustained rally that will push wheat prices back to profitable levels for this year.