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2014/15: A Wheat Marketing Year In Review

Jun 05, 2015
 
By Casey Chumrau, Market Analyst,  US Wheat Associates
 
Marketing year 2014/15 ended May 31 and proved to be another record setting year for wheat in several key categories. Production, supply and total consumption all hit record levels. However, quantity came at the expense of quality in many regions around the world and high protein wheat was in very short supply. Improved production in China and Argentina, combined with a strong U.S. dollar, resulted in lower U.S. exports. 
 
This year saw higher production in the European Union (EU), Russia and China that offset lower production in the United States, Canada and several other major suppliers. USDA estimates the 2014/15 global wheat crop reached a record 726 million metric tons (MMT), up 1 percent from the previous record of 715 MMT set in 2013/14. The higher production, coupled with a 6 percent increase in carry-in stocks, put global wheat supplies at a record 913 MMT, up 20.6 MMT from 2013/14, according to USDA’s calculation. 
 
The production scenarios were very similar in most of the major wheat producing countries in the Northern Hemisphere in 2014/15. Crop conditions in the United States, Canada and Black Sea region were promising before untimely rain hit just before harvest, which significantly diminished crop quality and reduced protein levels. In the EU, cool, wet weather throughout the growing season boosted yields and resulted in record production. However, the majority of the crop had low protein and poor overall quality. France, the EU’s top wheat producer, was the country most severely impacted by poor quality. Strategie Grains estimated just 64 percent of France’s 37.5 MMT crop reached milling quality, compared to a three-year average of close to 90 percent. In contrast, hot and dry conditions in the U.S. Pacific Northwest stressed the white wheat crop, resulting in higher protein in a class favored for its low protein content. 
 
China and Argentina both harvested more wheat in 2014/15 than the prior year, causing a shift in global demand. Following multiple years when consumption outpaced production, China looked to the world market to replenish diminished government wheat stocks, buying 6.77 MMT in 2013/14, the most since 1995/96. On top of the added supply, China produced a record crop of 126 MMT in 2014/15. According to USDA, this exceeded the estimated consumption of 124 MMT, causing imports to drop to half of the five-year average at 1.5 MMT. 
 
Argentina’s crop of 12.5 MMT in 2014/15 was closer to its historical average after two consecutive years of small output. In 2012/13 and 2013/14, the government restricted exports to a combined 5.8 MMT, putting its Mercosur trading partners in a tough spot. Brazil had to turn to the United States to help meet its annual 7.0 MMT import demand. These restrictions gave the United States a 68 percent market share in 2013/14, compared to a 7 percent average in the five years prior. Thanks to the larger crop, Argentina recovered some of its market share in 2014/15 when the government authorized 5.5 MMT for export. USDA anticipated a shift back to more normal trading patterns in 2014/15, with China relying on domestic production and Brazil relying on Argentina that would result in significantly lower U.S. exports. Initial estimates by USDA last May put 2014/15 U.S. exports at 25.9 MMT. However, a steady increase in the strength of the U.S. dollar toward a 12-year high, hindered exports even more over the course of the year. This further reduced the competiveness of U.S. wheat, which already holds a premium over competitors. Coincidentally, USDA estimates that 2014/15 exports fell to a 12-year low of 23.4 MMT, but it is interesting to note that because of its quality, variety and the reliability of its supply, customers in many countries continue to import U.S. wheat at a steady rate. 
 
Despite record consumption of 716 MMT, 2014/15 total global trade fell an estimated 2 percent from the record set in 2013/14 to 162 MMT. However, global exports were still 11 percent above the five-year average. Records in all major supply and demand categories have been broken many times in the past ten years, including three new records in 2014/15. The trend is likely to continue as we look forward to 2015/16 and beyond.