The October USDA World Agricultural Supply and Demand Estimates Report (WASDE) dealt a blow to the wheat market with a sharp lift in the size of this year’s global wheat crop.
Compared to the September report, global wheat production was up 6.34 million tonnes, with increases for Russia (1mt), the EU (2.17mt), India (2.38mt), and smaller increases for Canada and North Africa. The Australian production estimate was lowered by 1mt to 21.5mt.
Global consumption was raised by 2.09mt, but opening stocks were lifted by 750,000t, and closing stock estimates are now 4.99mt above the September estimate.
Global stocks are now set to be 268.13mt, with a stocks to use ratio of 36.25mt. Stocks are up 11.55mt on last year, and the stocks to use ratio is now at its highest level since 1998/99. The world remains awash with wheat, and that won’t change until Russia has another drought.
On the production side, this year’s global crop has been put at 751.19mt, which is still 2.96mt below last year’s record crop. We had expected a much sharper pull back this year, but the massive crop in Russia had put paid to that. The Russian crop is estimated at 82mt, up 9.47mt on last year’s record crop.
Russia now dominates the world wheat market, with projected exports of 32.5mt. This out strips the EU at 28.5mt and the US at 26.54mt. The Canadians are expected to export 21mt, with Australia at 18mt.
Within the US there have also been minor adjustments to their supply and demand numbers, with internal consumption lowered by 810,000t and production lifted by 40,000t. With a small drop to opening stocks, closing stock estimates were lifted by 750,000t. This is also not helpful for wheat prices.
It is hard to imagine a more bearish scenario for wheat, and far worse than we had expected at the start of this year. All things being equal, the Russian crop should have been smaller, not larger this year. That has given us 15mt more onto the global crop than we expected for this year.
At the moment US futures prices are still holding a premium to 2016 end of year prices. It is hard to see why, although stocks outside of China are down 4.64mt year on year thanks to a 6mt drop in wheat stocks in the US. This is about the only positive in the global wheat numbers.
In Australia, our dry season has slashed this year’s crop from 33.5mt to 21.5mt. Our ending stock numbers will fall from 6.73mt last year, to 3.38mt. Internal prices continue to be supported by these tighter stock levels in eastern Australia, and for growers in NSW and Queensland, will mask the weakness in international markets.
For growers in Western Australia and South Australia, who are exposed in full to the global wheat market, we are facing another year of depressed harvest prices. With a smaller crop though, and more competition between exporters meeting shipping deadlines and domestic endusers, basis levels should be a little higher than during last harvest, delivering higher prices off the header this year.
