By Angus Brown | Source: USDA, CME
The December World Agricultural Supply and Demand Estimates (WASDE) report was relatively benign, but confirmed a very strong stocks situation for world grain markets. However, there was some positive price news in the United States Department of Agriculture’s planting estimates for the coming year.
The only real change to wheat production estimates (figure 1) was a 6% increase in Canadian production, which pushed world production 2mmt (1.1%) higher. With consumption estimates held steady the USDA are forecasting an increase in ending stocks to a new record high of 229.8mmt (figure 2).
Wheat values are probably overpriced given the state of world stocks. However, the fact that the world is now consuming more wheat than it ever has leaves the market open to a quick drawdown in stocks with any serious production issues.
Interestingly, the USDA is sticking with a forecast of 26mmt of wheat from Australia, which would be a four-year high.
The WASDE forecast little change in world corn supply and demand, but there were some significant changes in some countries. Canada’s corn supply was estimated to be 10.5% higher, while India and South Africa saw 6% decreases.
Global oilseed production was estimated to be down 0.4%. This is thanks to a 3mmt decline in Indian production, which is expected to be matched by a decline in the crush in the same country. Ending stocks are expected to be slightly higher, and the stocks to use ratio at 18%, a five-year high.
The supply pressure on wheat is expected to ease somewhat, at least in the US, in 2016. The USDA also released planting estimates for wheat, corn and soybeans last week, with the US wheat acreage expected to fall 5.5% to 53 million acres in 2016 (figure 3). In fact, the USDA is forecasting 2017 wheat acreage to fall to 51 million acres, which would be the lowest level since 1970.
Despite lower prices, margins on corn remain good. As such, the USDA is expecting an increase in corn plantings, while this year’s record soybean plantings are expected to be followed by a 3.7% decline.
The last time US wheat plantings declined in the manner the USDA is expecting for 2016 was in 2010, and that was the same year we saw a strong price rise, albeit on the back of drought in Russia. Falling acreages simply means that the market is more exposed to weather issues that might impact yields. As such, price rises become more probable.
World feed markets are unlikely to see much relief from supply pressure if US corn plantings increase. Things look reasonably positive for oilseeds, which are already priced at reasonable levels and will be pushed higher if soybean production declines.
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