By Andrew Whitelaw | Source: MLA, CME, ACA
This week has seen the release of two major crop forecasts, the USDA world agricultural supply and demand estimates, and the local ABARES crop forecast. In this analysis, we examine the changes to the wheat supply and demand dynamics.
Locally we have faced some strong headwinds this year, and it comes as no surprise that production estimates are massively back year on year. It is worthwhile taking last year’s crop out of our thought process, as this was a monstrous crop and an outlier which we need to take into account. The production estimates for 2017/18 from ABARES (figure 1) currently stand at 21.6mmt, which is 886kmt above the USDA estimates.
This places the wheat crop 12% below the 10-year average, but only 2% below the 10-year average preceding 2016/17. The rest of September is really critical to the crop, and at this point I would be more surprised of achieving this forecast than it falling sub 20mmt.
At a global level, the USDA released their September WASDE report. This report forecasts the supply and demand for grain and oilseeds. The global wheat crop is forecast to drop 8.4mmt year on year (figure 2), although the forecast is up 1.6mmt from the previous month as a result of improving prospects for Russia & Turkey. However global stocks are likely to remain abundant, and ending stocks are forecast to rise by 7.6mmt.
I saw an interesting chart on twitter from FC Stone, which showed the change in wheat production on a year by year basis. This chart has been replicated (figure 3), however changed to a percentage movement as opposed to a quantity movement. This shows some very strong changes in production, with a number of nations dropping dramatically. However, last year (and the previous 3 years) have been very strong production years.
It is worthwhile examining the 17/18 wheat production against the 10 year average (figure 4), this shows that production is still strong against the ten year average, especially in the likes of Russia and Ukraine which are strong competitors in the export market.
The local picture points towards strong basis being maintained to fulfil domestic demand, however that is not much comfort for those with production issues, who will be unable to take advantage of strong basis premiums.
The global picture continues to be bleak, with albeit lower production ending stocks will continue to apply pressure on the world market for the immediate future.
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