Wheat markets did not take kindly to the USDA's June data release, with the July close ranging from 15 1/4 to 15 3/4 cents lower across the three wheat markets, with winter wheat contracts closing near their respective session lows.
This month's estimates included a hike in expected yields, with total United States all-wheat production reported at 2.077 billion bushels (56.53 million metric tons) which would be a three-year high and, as reminded by DTN Market Analyst Todd Hultman, "even though plantings were at their lowest in decades." As indicated in the USDA's monthly Crop Production report, winter wheat production was estimated 6% higher than the previous estimate and 10% higher than achieved in 2015, while current yield projections would result in the highest yields ever achieved.
Global wheat production was increased by 3.84 mmt this month to 730.83 mmt, with increases over the May estimates reported in the U.S., E.U. and Russia. Canada's estimated all-wheat production was reported at 28.5 mmt, 900,000 metric tons higher than achieved in 2015 and just slightly lower than the current AAFC estimate of 28.9 mmt.
Despite a .5% increase in global demand to 716 mmt, ending stocks were increased by 500,000 mt since last month to a fresh record of 257.84 mmt, up 6% or 14.83 mmt from 2015/16. Global trade volume is forecast to fall by 1.6% or 2.69 mmt to 165.59 mmt.
Here's the troubling part. It appears that global markets will once again remain well-supplied, while the overall size of the export market is forecast to be slightly smaller than in 2015/16. Included in Friday's report was an estimated year-over-year increase in U.S. exports. As seen with the red line on the attached graphic, U.S. exports were estimated at 875 million bushels in May and hiked to 900 million bushels this month (24.5 mmt), which is 125 million bushels or a significant 16% increase from the estimated 775 mb estimated for the 2015/16 crop year.
The blue line on the attached chart shows the trend in the monthly WASDE U.S. wheat export estimate starting in June 2015 at 925 mb, rising to 950 mb in July, then trending lower over many months to the current estimate of 775 mb, a number which could still prove higher than achieved volumes in 2015/16.
The risk for wheat prices is that if the U.S. achieves current production estimates while facing a global market not unlike that faced over the past crop year, export volumes could once again see pressure over time, like last year, which could lead to higher expectations for ending stocks while leading to increased bearish sentiments.
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