Last week’s monthly USDA Report saw global wheat supply estimates reduced, with a 1.7 million tonne increase in production estimates being offset by a 2.7mt reduction in global stocks coming into this year.
As expected the big jump in production came in Russia, where production was lifted by 3.5mt to a massive 81mt in total. While some are suggesting this number could be increased further, others are saying that the late harvest is tailing off a little.
The Australian crop estimate was reduced by 1mt to 22.5mt. This is still above the ABARES estimate of 21.6mt, with most local analysts suggesting that our final crop will probably be less than 20mt.
The big news is the substantial changes the USDA has made to Australian historical data. Based on Australian Bureau of Statistics (ABS) data, the USDA reduced the areas of planted crop for the last two seasons. The ripple on effect was to reduce the production estimates for 2015/16 and 2016/17. In turn our ending stock levels were also reduced.
This helps explain a lot of what is being observed in the field by local marketing consultants. That is, that the amount of grain being reported by USDA and ABARES does not match what is being observed out in the regions. For some time, savvy consultants have been saying that the Australian wheat crop has been consistently overstated.
While ABARES continue to report our crop last year at 35.009mt, the USDA is now calling it 33.5mt. In turn, the USDA ending stock numbers for 2016/17 have been reduced from 8.94mt to 6.55mt.
Now we have an explanation for why wheat stocks are running out in NSW, despite assertions by some that enough of last year’s massive crop is still available to meet this year’s domestic demand. The reality is that the grain is not there, and the market is pricing wheat accordingly to stop NSW wheat being exported this year, and to drag wheat in from southern areas to fill the gaps.
Basically, the market, via wheat prices, has been saying for some time that either last year’s crop was not as big as thought, and/or that exports and domestic use have been greater than being factored in.
The USDA has decided that our crops have not been as large as official numbers have suggested. Exports and domestic use estimates have also been pulled back a little, reinforcing the point that the lower apparent stocks within Australia at the moment are a function of production in recent years being lower than reported.
One would hope that the USDA is using accurate export data from ABS, and while domestic consumption is harder to measure, it is a much smaller component of the total, reducing the impact of estimation errors.
For this year the USDA still has a healthy export number of 18.5mt, with stocks dropping to a four-year low of 3.7mt. Any reduction in the Australian crop from here will come straight off our ability to export.
If the pundits are correct about our crop being sub 20mt, then we could easily see 3 – 4mt come off our 2017/18 export projections, opening up the way for more US wheat to find its way into global markets.
