Canada Markets

USDA's Global Wheat Data Appears Bleak

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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While it's early days for the 2015/16 crop year, USDA released grim global wheat data Friday due to revisions to global consumption estimates for previous years. Global ending stocks are expected to climb sharply in 2015/16 (red bar) while the global stocks-to-use ratio is expected to climb for the third consecutive year and the highest level in six years. Source: USDA (DTN graphic by Anthony Greder)

While many western Canadian producers are dealing with a what appears to be a well-below-average crop in 2015, USDA threw a pail of cold water on wheat markets by releasing a bearish report for both their domestic crop and even more so for global wheat data with wild adjustments made to prior year estimates. Of course it's early days, and further potential cuts to the production potential in Canada, Europe, Russia and Australia could take place to impact the supply side of the equation.

The largest surprise seen in Friday's data for all crops is seen in global wheat data, specifically cuts to China's domestic consumption in the 2013/14, 2014/15 as well as estimates for the 2015/16 marketing year.

Perhaps this should not have been a surprise. USDA's Foreign Advisory Service People's Republic of China Grain and Feed Update released on June 26 suggests sharp reductions in estimates for China's feed wheat consumption starting with a 36% year/year plunge in feed use in the 2013/14 crop year, as increasing corn production created a scenario where wheat prices were unable to compete with lower-cost corn.

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The end result was a wild swing in global wheat consumption seen from 2013/14 through 2015/16, which in turn boosted ending stocks. In total, China's wheat consumption was lowered 5 mmt for 2013/14, increasing ending stocks by 3.74 mmt. China's consumption in 2014/15 was reduced by 6 mmt, which contributed to an 11.65 mmt hike in global ending stocks to 212.06 mmt. Last of all, China's expected demand was lowered by 5 mmt for 2015/16, resulting in a 16.5 mmt increase in the global carryout since the June estimate to 219.81 mmt.

A few things are of interest. First, the nearly 220 mmt global carryout estimated for 2015/16 is 9% higher than the average of Dow Jones' pre-report estimates of 201.4 mmt, far surpassing all expectations. Secondly, other global analysts have recently cut global ending stocks. On June 24, the International Grains Council cut their 2015/16 world ending stocks by 4 mmt to 196 mmt, while only Thursday, the AMIS Market Monitor reduced ending stocks by 3 mmt to 198 mmt. Last of all, if USDA were right with a 219.81 mmt carryout, this would represent the highest global carryout seen in the USDA's Wheat Yearbook data going back to 1960.

The attached chart shows USDA data which indicates the third consecutive increase in ending stocks since 2012/13. The estimated stocks/use ratio is calculated at 30.78%, the highest level since 2009/10 and would suggest that the world could continue to be in a comfortable position as far as wheat supplies go in the upcoming year. But then again, does anyone really know? It's interesting that wheat rallied upon the release of today's report before closing lower on late-day selling.

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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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