Canada Markets

Is All of the Bad News in the Wheat Market?

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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This chart shows USDA global ending wheat stocks estimates (bars measured against the primary vertical axis) and stocks/use ratio (black line against the secondary vertical axis) for 2012/13 through 2015/16, as well as monthly 2016/17 estimates starting in May 2016. The average of Dow Jones pre-report estimates (brown bar) points to a potential cut in global ending stocks to 247.7 million metric tons, still a record level, but would reflect a fifth consecutive month-over-month cut, as measured against the primary vertical axis. (DTN graphic by Scott R Kemper)

Should the USDA reduce their 2016/17 global ending stocks estimate in Wednesday's report, as is expected given the average of analyst's pre-report estimates reported by Dow Jones, it would be the fifth consecutive month that this ending stocks figure has been trimmed.

As seen on the attached chart, global ending stocks were estimated as high at 257.84 million metric tons in the June report (blue bars measured against the primary vertical axis), an estimate that has since been cut in the July, August, September and October reports.

The final brown bar represents the average of a Dow Jones poll of analysts, which points to the potential for a further reduction from the October report to 247.7 mmt of wheat carried out of the 2016/17 crop year. This would be the fifth monthly decline in this stocks estimate. While this number remains a record level and a year-over-year increase in ending stocks of 8 mmt or 3.4%, an increase in use tied to increased inclusion in global feed markets could help slow the rapidly escalating trend which has seen global ending stocks increase by an average of 21 mmt or 10.9% over each of the past three crop years (2012/13 through 2015/16).

Global ending stocks as a percentage of global use (black line) was left unchanged at 33.8% in the USDA's October report, down from the 36.1% estimated in the first 2016/17 estimate released in May. A more favorable view of global use in Wednesday's report could see global stocks/use fall below the 33.7% estimate calculated for the 2015/16 crop year. This could lead to the first year-over-year drop in global stocks/use seen in four years. As seen on the attached chart, global stocks as a percentage of use increased from 26% in 2012/13 to 33.7% in 2015/16.

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DTN 360 Poll

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

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