By Andrew Whitelaw | Source: USDA, Trade
Early this morning the USDA released their May World Agricultural Supply and Demand Estimates report. The May report is particularly interesting as it is the first of the year to forecast the global 2017/18 crop. In this analysis, we give an overview of the report and what it means for pricing.
The market awaits the release the monthly World Agricultural Supply and Demand Estimates (WASDE) reports with baited breath looking to see the likely impact on crop growth. However, the reaction to last night’s report has been relatively sedate with wheat up 1%, hardly an exciting result.
It’s been a good couple of years for global wheat production (figure 1), and if the USDA forecasts are to be realised, then 2017/18 will continue that trend. The world is expected to produce 737.8mmt, down 2% year on year, with consumption expected to also fall 1%. The fall in production is a good sign for prices, however it is having to be tempered by ending stocks.
The world end stocks are projected at 258.3mmt, up 1%, which gives 2017/18 the gold medal for stocks. This is a record levels of stocks (figure 2), and with the small change in production will largely place a ceiling on how high prices can go (if forecasts are right).
At a local level the Australian wheat crop for 2017/18 has been reduced to 25mmt, a drop of 29% year on year, however remember last year was a behemoth of a crop. At 25mmt, the crop would still be a healthy volume at 2.3mmt above the average since the start of the century, or 3.1mmt if you preclude the 2016/17 season. Importantly the bumper 2016/17 and forecast above average 2017/18, provides Australia with a high level of end stocks, at 1.1mmt above average. It must also be noted that our competitors in Russia will also have large inventories at 2mmt above the average (figure 3).
The overall wheat picture still points towards a low-priced wheat environment, and barring a major production catastrophe around the world it will remain that way. As we progress through the year the risk to the northern hemisphere plant diminishes, that is not to say we won’t see spikes when small issues arise.
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