Last week’s US Department of Agriculture report gave the first estimates of global ending stock estimates for 2018/19 for corn, soybeans and wheat all of which came in lower than market expectations.
The same numbers for the US were all above what market watchers were expecting.
Grain prices have fallen since the report. In part this is due to fund buying drying up, after significant buying ahead of the report.
We are also seeing planting progress being made for US spring crops, while some rains are expected in drought and dry areas of the US and Black Sea.
For wheat the direction has been down, both before the USDA Report, and after. From the peak in prices on May 3, the CBOT July wheat futures contract had shed just over 50 USc/bu, or close to A$24 per tonne.
On the face of it the USDA Report should be supportive of wheat based on falling global stocks, but the market is reacting to larger than expected US production and ending stock estimates, and to the reality that global stocks will still be the second largest on record.
Global stocks are forecast to fall by 6.13 mill t year on year. This is more than pre-report surveys had indicated but leaves stocks at 264.33 mill t, the second highest on record. It also incudes 138.62 mill t in China, which is effectively off the global market.
That’s where it begins to get interesting, because stocks outside of China are forecast to fall by 17.93 mill t, to 124.2 mill t. That will become the lowest level since 2008/09. The stocks to use ratio excluding China is 19.47 per cent, the lowest since 2007/08.
Perhaps this number is not getting much attention because US stocks will fall this year by 3.15 mill t, but that only takes US stocks down to 25.98 mill t. It will be the fifth year in a row where US stocks have been above 20 mill t. The last year US stocks were at reasonable levels was in 2013/14.
If we go one step further, and look at stock levels outside of China and the US, we see stocks falling by 14.78 mill t, to 98.22 mill t, the lowest since 2007/08. The stocks to use ratio, 16.19%, is the lowest at anytime since before 2003/04.
So, the market is still being held back by perceptions of large wheat stocks. The reality is that those stocks are basically in China, the US, and the Black Sea, with the world market being very reliant on stocks from the Black Sea for the next year.
If the US crop is over estimated, or production in the Black Sea is compromised, we are heading to a situation very similar to that of 2007/08, when shortages sent wheat skyward.