Last week’s USDA report gave the first look at American supply and demand for the 2017-18 season.
The report has given direction to the market, but there was always a risk that an unexpected set of numbers, one way or the other, would trigger a sharp reaction.
The key parameters for wheat were whether world and US stocks for wheat and corn would begin to come under control. The answer to both was yes. Stocks aren’t expected to keep growing, and should in fact retreat a little over the next year.
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 million 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 in the foreseeable future. And while good seasons may slow the reduction in US wheat stocks, the direction seems to be set.
One issue is consumption, with cheap corn limiting the growth in use for feed. This is a global issue, 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 exports are also likely to be lower. US corn stocks are still likely to fall though, so that will help the price trend for wheat.
Global figures for wheat do not look as encouraging, with only a modest drop in supplies despite a 15.71 mill t drop in the size of this year’s crop. Global 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 17.1 mill t, leaving a drop of 14.26 mill t outside China. Non-China stocks are predicted to drop to 130.3 mill t, close to the lowest level since 2012-13.
The key for wheat is the forecast drop in production. From last year’s record 753.09 mill t, a 737.48 mill t crop is expected this year. Big reductions are forecast for the US and Australia, with a combined fall of 23.32 mill t.
Russia will add another 9.23 mill t to the downside, with Canada’s crop also 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 with a projected lift of 5.53 mill t.
The big mover is India, where production is expected to rebuild by 10 mill t, but it may remain a net importer after a sharp rundown in stocks last year.
While projections should stop prices falling to lows seen last year, the numbers are still not tight enough to trigger a sharp, sustained rally that will push prices back to profitable levels this year.