Early forecasts for 2019/20 wheat markets could spell more of the same marketing challenges that have been faced in previous crop years. Global wheat carryout estimates for the current crop year are seen rising as we near the end of the crop year. Last week's WASDE report increased ending stocks by 3 million metric tons, to 270.53 mmt, the highest monthly estimate shown this Canadian crop year, or since August 2018. While this volume would represent the first year-over-year decline in six years, the decline is modest at 3.2%, while 11.57 mmt higher than the volume released in the August report.
On Tuesday, Commerzbank of Australia noted that global wheat production could rise in 2019-20, with increased production forecast for the European Union, Russia, Australia and Canada. AAFC estimates for February notes a 15-mmt increase in global all-wheat production, to 750 mmt globally in 2019-20.
The attached chart represents prospective 2019-20 Canadian wheat carryout (excluding durum) estimates given a number of combinations of export demand and yields. Export demand varies by 250,000 metric tons across the horizontal x axis, while yields vary by .5 bushels/acre on the vertical y axis.
Assumptions build into the model include:
-- AAFC's 2018-19 ending stocks of 4 mmt
-- AAFC's 2019-20 seeded acre estimate of 20.410 million acres (up 9% year-over-year), with harvested acres at 97.3% of seeded acres
-- AAFC's domestic demand at 8.180 mmt
-- AAFC's estimated imports at 80,000 mt
The value shown in the brown box near the middle of the chart, or 5.515 mmt, represents the most recent February AAFC forecast for 2019-20, which points to an average yield of 52 bushels per acre and a slight drop in year-over-year exports to 18.5 mmt.
The yellow-shaded boxes represent combinations of average yield and export demand that would lead to lower wheat stocks as of July 31, 2020, relative to the current forecast. Given the range of exports noted on the x-axis scale, this scenario plays out over a range from 47 bpa to as high as 54 bpa.
The green shaded area at the lower-end of the graphic points to combinations of yield and export demand that would result in higher ending stocks in 2019-20, relative to the current forecast, found at various combinations of yield and demand above 50 bpa. Note that the five-year average wheat yield is reported at 50.7 bpa by Statistics Canada.
In actuality, results will vary largely due to a number of factors, both on the supply side and the demand side. One number to watch is the current crop year's pace of exports and effect on ending stocks as we move towards the end of the crop year. The USDA's March WASDE report includes Canada's exports forecast at 24 mmt (all-wheat) for 2018-19, as compared to AAFC's 22.8 mmt released in February. The USDA forecasts ending stocks of all-wheat at 4.87 mmt, as compared to the 6 mmt (4 mmt of wheat and 2 mmt of durum) last released by AAFC.
The current pace of wheat exports could support the USDA's views. As of week 31, the five-year average volume of licensed exports reported for the week represents 52.4% of the crop year's total exports, an average pace that would project to crop year exports of wheat of 20.4 mmt, well-above the current 18.7 mmt AAFC forecast released in February.
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Cliff Jamieson can be reached at email@example.com
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