The May WASDE report estimates global wheat stocks to grow by 1.2% to a record 258.29 million metric tons. As seen by the yellow bar representing the 2017/18 projection on the attached chart, this would be the fifth consecutive annual increase in ending stocks, while is close to 14 mmt higher than the average of pre-report estimates. It is also higher than the highest estimate reported in Dow Jones pre-report estimates.
While global production is expected to fall by 2%, or 15.3 mmt, to an estimated 737.83 mmt, it would still be the second largest crop in USDA records. The USDA notes that supplies for the upcoming crop year will fall only slightly as the lower production estimate offsets the year-over-year increase in ending stocks.
If this forecast does prove true, perhaps the silver lining is the slowing growth in stocks. The increase in stocks from 2016/17 to 2017/18 would be just 2.94 mmt based on current projections, while over the past four years (2013/14 to 2016/17), the year-over-year growth in ending stocks has ranged from 13 mmt to as high as almost 25 mmt) while averaging 19.4 mmt.
Stocks as a percentage of annual use, as indicated by the black line with markers, is also forecast to climb for a fifth straight year to 35.1%. This level was last seen in 2000/01. As noted by DTN Senior Analyst Darin Newsom in Wednesday's USDA's Initial Look at 2017/18 Crops webinar, a huge concern is the estimated decline in forecast demand for the 2017/18 crop year that the USDA links to a decline in global feed use. Unlike other crops such as corn and soybeans that are expected to face an increase in global demand in the upcoming year, wheat could face its first year-over-year drop in demand in five years, according to USDA data, which bears watching.
Another consideration is where the stocks are located. Today's 2017/18 estimates shows an expected year-over-year drop in the stocks of seven of the eight major exporters, with stocks expected to fall in the United States, Canada, Australia, EU, Russia, Kazakhstan and Ukraine. Argentina is expected to show a modest year-over-year increase in stocks. Of the current projection for 2017/18, the largest year-over-year build in inventory is seen in China, where stocks are expected to increase from 110.79 mmt in 2016/17 to 127.99 mmt in 2017/18, accounting for a whopping 49.6% of the total global carryout. This volume of stocks, and the quality of such stocks, must always be treated as suspect.
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Cliff Jamieson can be reached at firstname.lastname@example.org
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