The July USDA Report held surprises for both wheat and corn, with lower than expected ending stock estimates for both crops.
Global wheat stock estimates were lowered by 5.28 million tonnes.
The decline was on the back of an 8.43 million tonnes downgrade to global production, with losses being recorded for Australia, Russia, Ukraine and the EU.
For corn, the USDA cut global stock estimates by 2.7 million tonnes.
The negative to come out of the report was a further lift to US wheat stock estimates of 1.06 million tonnes.
The carryout from the previous year was lifted with exports falling short of projections, adding to a lift in production expected this year.
A lift in US export estimates wasn’t enough to stop US wheat stock estimates being raised.
That said, US ending stock estimates are expected to fall by 3.15 million tonnes year on year, and any further decline in production estimates for other major exporters should see demand for US wheat take up the slack.
However, at this stage the USDA are not projecting a big lift in US exports.
Year on year they are projecting a 2.63 million tonnes increase, but it will still leave US ending stocks at an estimated 26.8 million tonnes.
Accentuating the issue for the US is that production is pegged at 51.21 million tonnes.
This is up 3.84 million tonnes on last year, but down on the average US crop of 59.45 million tonnes for the period from 2008-09 to 2016-17.
Basically, US production is declining, but not enough to drive US wheat stocks down to more realistic levels.
Wheat futures have reacted positively to the tightening global stocks position but is being held back by high stock levels within the US.
The large carryout stock levels in the EU and Russia from last year will continue to feed into global markets, shutting out US exports.
US wheat prices still remain sluggish, and seemingly cannot factor in the underlying train wreck that we appear to be heading towards.
That train wreck, is the sharp fall in stocks outside of China and the US.
The current USDA numbers suggest an 18.76 million tonnes year on year decline in stocks outside of China and the US, down to just 96.42 million tonnes.
That measure of wheat stocks to use has not been that low since well before 2003-04.
On previous occasions a ratio that low has been enough to trigger a significant rally in wheat prices to trigger renewed production to rebalance the global balance sheet.
If we assume a recovery in global wheat production in 2019, we still only maintain the overall position against what, over time, is a steady increase in global consumption.
