Wheat data released by the USDA on Wednesday was viewed as bearish, largely based on changes to United States production for both the 2012/13 and the 2013/14 crop years. 2012/13 data saw U.S. ending stocks increase 15 million bushels to 746 mb, when the average trade estimate was looking for a 734 mb carryout. The 2013/14 U.S. carryout was forecast at 659 mb, with the average trade estimate looking for a cut to 634 mb. One of the peculiarities noted was an increase in hard red winter wheat production of 13 mb, to 781 mb, since the May report, despite the ongoing hardships the crop has faced.
The market closed lower on Wednesday with this release of data, with the July soft red winter wheat crop closing down 13 3/4 cents and the July hard red winter wheat crop closing down 13 1/2 cents. Spring wheat futures fared better, closing down 9 to 10 cents.
One set of data that perhaps didn't receive the attention it deserves was the global wheat production data. For weeks now, global estimates have comforted markets with the fact that significant gains seen in global production would leave the world in a comfortable position with regards to wheat supplies.
The USDA's May estimate for global production for 2013/14 global production was 701.10 million metric tonnes. This would reflect a 6.9% increase from the 655.64 mmt produced in 2012/13. Just days ago, the Agriculture Market Information System (AMIS), a G-20 effort, released their June report calling for global production of 702 mmt.
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The USDA's June report, released on June 12, cut global production by 5.24 mmt to 695.86 mmt. Cuts were made in the European Union totaling 1.33 mmt, cuts in Russia totaled 2 mmt and in the Ukraine totaled 2.5 mmt. As a result, ending stocks for 2013/14 are forecast to grow by a slim .8% from 2012/13 to 181.25 mmt.
Despite the slight increase in the estimated carryout, the stocks/use ratio is forecast to fall by .5% in 2013/14 due to a sharp increase in estimated demand.
One piece of data missing in today's report was the fact that the USDA's Foreign Agriculture Service (FAS) released a June 5 Global Agriculture Information Network (GAIN) report on the country of India, which cut India's wheat production by 5 mmt from 92 mmt to 87 mmt. This did not show up in today's USDA release, suggesting a further potential cut coming to global production.
An article by The Western Producer titled "Chinese wheat crop could miss target" interviewed the CWB and focused on damage to the Chinese crop, the world's largest wheat producer. Heavy rains as high as 5 inches are believed to have caused extensive damage to the crop, which are believed to require the Chinese to increase imports by 500,000 to 1 mmt over and above the 3.5 mmt forecast by the USDA. Once again, no changes were made to China's supply and demand data in today's WASDE report.
SovEcon, a Russian-based forecaster, reported to Dow Jones on June 13 that they had increased Russia's production prospects from 50 mmt to 52mmt based on more favorable weather. This remains 2 mmt below the 54 mmt estimated by the June WASDE report. It is SovEcon's belief that the market is failing to take into account Russia's historically low carryout stocks from 2012/13 and the high internal prices, thus overestimating Russia's export potential and under-estimating the country's need to rebuild the stock levels in the country.
It's difficult to create a bullish case for global wheat. It is likely that production will increase substantially over 2012/13, while demand will also rebound higher from last year's low. It is possible that year-ending stocks will be drawn lower which may be viewed as a supportive feature in the market.
Cliff Jamieson can be reached at firstname.lastname@example.org
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