By Andrew Whitelaw | Source: USDA
The USDA released their June World Agricultural Supply and Demand Estimates (WASDE) on Friday (US). Although the June report has not provided many surprises, however we look at stocks in two ways to provide some cautious optimism.
The report was bereft of any major surprises, and was on the bearish side when it came to wheat. The global production estimates were increased by 1.7mmt, and were down 14.5mmt. However, consumption has also fallen year-on-year by 5.4mmt (figure 1).
The main data holding back prices from rebounding drastically remains the huge end-stocks. The global end stocks were increased month on month by 2.9mmt. The global end stocks remain at record highs of 261.12mmt.
It will take some time for the world to run down the current global stocks, however a glimmer of hope remains around where the stocks are located. Almost 50% of the global wheat crop is expected to be held in China (figure 2), a level not seen since the mid 90’s.
This equates to roughly 5 times the average Australian crop at 127mmt. The silver lining in these grain stocks is that this is 127mmt of wheat which is unavailable to the global market, when this is taken into account global end stocks have actually fallen 12mmt to 133mmt (figure 3).
It has to be noted that these are still high stocks, but they do start to teeter on the edge where supply shocks in 2017 or 2018 will start to pressure supply.
The global stocks although at record highs, are heavily weighted towards China. A series of supply shocks in the major exporters will lead to a tightening of wheat available to importing nations, which would help provide an upturn for pricing.
So as always at this time of the year, we are on a knife edge where the market could easily go either way dependent upon production around the world. Although we are confident that the downside in futures is largely limited.
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