Global Wheat Supply, the Highest in History
Chris Coore, Agfarm Advantage Manager
July 16th 2019
It’s the time of year in Australia when every man and his dog are looking at local and global crop production estimates to figure out what might happen to grain prices in the lead up to harvest. The usual questions are doing the rounds. ‘What does the supply and demand look like locally and globally?’ ‘Will we get a good soft finish?’ ‘Will the size of the global crop have an impact on Australian prices this year?’ ‘Do I sell a portion of grain now or wait until I am more confident in the season?’ Unfortunately, we don’t have a crystal ball to answer these questions. We can however make educated assumptions based on the information we have. So, this month we’re going to take a look at the local and global crop forecast and what this could mean for grain prices over the next three months.
After a disappointing 2018/19 season globally for wheat, production has amplified for 2019/20. On the 12th July Australian time, the United States Department of Agriculture (USDA) issued their July World Agricultural Supply and Demand Estimates (WASDE) report. The report showed global production forecast is set at 771.463 Million Metric Tonnes (MMT), an increase of nearly 50MMT from the current season. The stocks to use ratio, which works on carryout stock divided by total demand calculated as a percentage, moved to a very comfortable 37.7%, a slight decrease from the 2018/19 season of 37.9%. The report also showed the global supply of wheat (production plus carry in stock) is projected to be the highest in history at 1,057.93 Billion Metric Tonnes.
World wheat production estimates paint a story of the world being awash with a record supply of wheat, which would historically lead to lower prices. However, as well as announcing a projected record on global supply, the WASDE report cut expected production a total of 9.4MMT in some of the world’s largest key production areas since their June 2019 report:
– EU’s June wheat production was at 153.8MMT and the July report decreased by 2.5MMT to 151.3MMT.
– Russia’s June wheat production was at 78MMT with the July report cutting production by 3.8MMT to 74.2MMT.
– Ukraine’s June wheat production was pegged at 30MMT with the July report cutting production by 1MMT to 29MMT.
– Australia’s June figure was 22.5MMT and the July report showed a reduction of 1.5MMT to 21MMT.
Despite global wheat stocks being healthy, the concerning issue is key export regions are cutting production estimates from earlier in the year, which will likely lead to volatility in price until production is more known.
In Australia, we’ve had a fantastic start to the growing season from Western Australia all the way around into Southern New South Wales. Due to the positive start, prices continue to weaken across most commodities as concerns around new crop production levels have been dampened. However, caution needs to be taken for new crop production levels in Australia. BOM recently released their outlook for August until October 2019 showing a warmer and dryer outlook and a possible increase in frosts. As we know, September is a key time for Australian winter crop production, so if the BOM’s prediction does eventuate, we could once again see prices increase as we move into harvest.
What does it mean?
With the global wheat balance sheet looking healthy we do not expect any real supply concerns over the short term, even with the recent cuts in projected production, which should keep a ceiling on international grain prices. Locally, as we move into the key growing period in Australia, rainfall and temperatures will be the key price driver to watch. As we’ve seen in previous years, Australia is capable of running its own pricing race and with last year’s poor east coast production still fresh in our minds, any production concerns will likely be met with a rally in price.
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