Global wheat supply estimates have been reduced in the latest USDA report, with a 1.7 million tonne increase in production estimates offset by a 2.7 mill t reduction in stocks coming into this year.
As expected, the big jump in production came in Russia, where production was lifted by 3.5 mill t to a massive 81 mill t in total. While some are suggesting this number could be increased further, others are saying the late harvest is tailing off a little.
The Australian crop estimate was reduced by 1 mill t to 22.5 mill t. This is still above the ABARES estimate of 21.6 mill t, with most local analysts suggesting our final crop will probably be less than 20 mill t.
The big news is the substantial changes the USDA have made to Australian historical data. Based on Australian Bureau of Statistics data, the USDA reduced the areas of planted crop for the last two seasons. The ripple 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 continues to report our crop last year at 35.009 mill t, the USDA is now calling it 33.5 mill t. In turn, the USDA ending stock numbers for 2016-17 have been reduced from 8.94 mill t to 6.55 mill t.
This provides an explanation for why wheat stocks are running out in NSW, despite assertions that enough of last year’s massive crop is still available to meet this year’s domestic demand. The reality is 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.
Exports and domestic use estimates have also been pulled back, reinforcing that the lower apparent stocks in Australia are a function of production in recent years being lower than reported.
The USDA still has a healthy export of 18.5 mill t, with stocks dropping to a four-year low of 3.7 mill t. Any reduction in Australia from here will come straight off our ability to export.
If the pundits are right about our crop being sub 20 mill t, 3-4 mill t could come off 2017-18 projections, opening the way for more US wheat in global markets.
