This month's USDA China Grain and Feed Update along with the August World Agricultural Supply and Demand Estimates (WASDE) report are in harmony projecting a huge build in China's wheat stocks for 2017/18, which would be the fifth consecutive annual increase. Current forecasts show the country may add the equivalent of an average Canadian all-wheat crop over a period of two crop years, or a total of 30.55 million metric tons from 2015/16 to 2017/18, continuing a pace that has been shown over the past few years. Recent forecasts show the country holding close to 50% of global stocks by the end of 2017/18.
In total, global ending stocks are estimated at a record 264.69 mmt, up 6.13 mmt or 2.4% from 2016/17. This moves the needle higher on global ending stocks relative to estimated demand, moving from an estimated 35% in 2016/17 to 35.9% in 2017/18. In the most recent August Post-USDA Report webinar, DTN Senior Analyst Darin Newsom pointed to the Chicago soft red winter wheat forward curve (a series of points which connects the closing price for each consecutive contract over time) as pointing to a bearish view of fundamentals, indicated by an upward-sloping line right through to March 2019.
At the same time, he asked the question of what would happen should the Chinese data be removed from the calculation? Over the past five years, the global stocks/use ratio for global wheat has moved from 26.1% in 2012/13 to 35% in 2016/17, according to the USDA's World Markets and Trade. Stripping out China's stocks and consumption from reported data shows the stocks/use ratio for the rest of the world ranging from 22.3% in 2012/13 to a high of 24.3% in 2015/16, averaging 23.3% over the five-year period. While this data appears much more consistent, it could still be viewed as bearish.
As seen in Wednesday's diverging trade across wheat markets, the search for protein will be the opportunity that lies ahead for prairie producers. The USDA states, "The EU and Russia are both forecast to have larger crops and are expected to pick up exports at the expense of the United States and Canada. However, the vast majority of the EU and Russian crops will not be of adequate protein to compensate for the reduced availability of U.S. and Canadian spring wheat."
DTN 360 Poll
This week's poll asks if you think that spring wheat futures will test the highs reached in early July. You can weigh in with your thoughts on this week's poll found on the lower right side of your DTN Canada Home Page.
Cliff Jamieson can be reached at firstname.lastname@example.org
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