World Wheat Supplies Get a Lift, But U.S. Stocks Look Tight

By Casey Chumrau, USW Market Analyst

Following its quarterly Grain Stocks report last month, USDA, as expected, increased its estimate for both 2013/14 world and U.S. ending wheat stocks in its April World Agricultural Supply and Demand Estimates Report. That means additional supply will be available to meet demand moving into 2014/15 before new crop wheat is available to the market. Despite the increase, year-end supplies remain tighter than average.

USDA estimates 187 million metric tons (MMT) of wheat will be left in the world’s bins at the end of May, up 2.87 MMT from last month and 10.1 MMT more than last year. A 2.07 MMT reduction in wheat used as feed (133 MMT), mostly in China, accounted for most of the ending stocks increase. If realized, global wheat stocks will fall 7 percent below the five-year average and put the stocks-to-use ratio at 26.9 percent, down from the five-year average of 27.3 percent. USDA estimates global wheat consumption will reach a record 702 MMT.

U.S. wheat supplies are even tighter than world supply. Domestic production of 58.0 MMT in 2013/14 was down from 61.7 MMT the previous year and 5 percent lower than the five-year average. At the beginning of the marketing year, USDA expected U.S. wheat exports to fall from 2012/13 because of larger harvests in the Black Sea countries. But, U.S. exports have already exceeded last year’s sales with high demand from Brazil and China. USDA expects total U.S. wheat exports at the end of the year will be 17 percent greater than last year at 32.0 MMT, up 12 percent from the five-year average.

USDA projects domestic U.S. wheat demand combined with total exports to exceed production in 2013/14, meaning fewer reserve stocks will carry into the new marketing year — 15.9 MMT compared to the five-year average of 21.5 MMT. The stocks-to-use ratio of 23 percent will fall well below the five-year average. If realized, it will be the smallest ending stocks and lowest stocks-to-use ratio since 2007/08 when tight U.S. and global supply sparked record prices.

Looking at individual U.S. wheat classes, supplies of HRW, SRW and white wheat are particularly tight. Brazilian purchases have bumped total 2013/14 HRW exports up 20 percent compared to 2012/13 on top of a smaller-than-average crop. HRW ending stocks could be about half of the five-year average and, at 19.7 percent, HRW stocks-to-use will be 47 percent below its five-year average. China’s purchases in 2013/14 have pushed SRW sales to their largest level since 1989/90 — and helped push down the anticipated SRW stocks-to-use ratio to 21.7 percent. That is 49 percent below the five-year average. Steady export demand for white wheat combined with much higher domestic use will put ending stocks at 1.33 MMT, the second lowest on record behind 1.01 MMT in 2007/08. The white wheat stocks-to-use ratio will also be the lowest since 2007/08 at 17.2 percent, if realized, or 36 percent below the five-year average.

U.S. farmers and private exporters continued to meet demand in 2007/08 when U.S. supplies were very low, and they will continue meeting demand in 2014/15. However, tight supplies bear watching as they may be a catalyst for higher prices, especially if crop conditions across the Northern Hemisphere deteriorate.

Source : uswheat.org