With investors holding significant short positions across the grains and futures for soft red winter wheat, hard red winter wheat and hard red spring wheat all reaching contract lows this week, the International Grains Council released a bearish new-crop wheat forecast. The forecast may suggest the improvement in global fundamentals experienced in 2018-19 was a mere blip. The 2019-20 projections indicate a return to the bearish combination of rising production and stocks last experienced in 2017-18.
On April 25, the IGC increased its estimate for 2019-20 global production by 3 million metric tons to 762 mmt, just 1 mmt lower than the 763 mmt they forecast for 2017-18. This represents a volume that is 27 mmt or 3.7% higher than forecast for 2018-19. The IGC notes a higher expected output for Russia, Australia, Ukraine and Canada.
While the organization sees global consumption growing, its estimate of 752 mmt for the upcoming crop year would indicate that consumption is growing slower than the rate of growth in production. Considering USDA historical data, 2018-19 was the first time in six years that consumption exceeded production, while ICG's projections indicate that the global market will see a return to this scenario.
As a result, ending stocks are forecast to grow by 10 mmt, to 274 mmt, a record volume to be carried from the 2019-20 crop year according to IGC data. This represents a bearish 36.4% of global use. An IGC chart posted to Twitter today points to ending stocks forecast to fall in just two of the 10 countries charted. Stocks in the U.S. are forecast to fall by roughly 1.75 mmt, while Kazakhstan is forecast to see a modest drop in stocks. Meanwhile, current forecasts indicate that global stocks will rise in Argentina, Australia, India, Ukraine, European Union, Canada, Russia and China.
There does exist reasons why this early bearishness could be questioned. First of all, close to 50% of the growth in global stocks is forecast for China, stocks that do not make their way onto the world market. Secondly, of the four major growing areas where the IGC is expecting an increase in output, three regions are currently dry. Conditions in Western Canada, Australia and areas of the EU point to a need for moisture and bears watching, while excessive moisture in the U.S. could have a detrimental effect on some winter wheat crop development and hamper spring wheat planting.
Lastly, we also need to consider the potential effect of trader sentiment on market prices. As shown in DTN analysis, noncommercial traders held a record net-short position when positions of corn, soybeans, wheat, soymeal and soybean oil are combined as of April 16, while this week's reports will show this record extended as of April 23. Should this group show a change in sentiment, they say a rising tide lifts all boats and the grains could be destined for higher levels.
The USDA will release its first look at 2019-20 on May 10.
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