The May USDA report covering World Agricultural Supply and Demand Estimates has given us our first look at its 2019/20 projections, and for wheat it is not pretty. Global production is expected to rebound sharply from last year's reduced global crop, and while consumption will also lift, it won't be enough to prevent global wheat stocks from growing to a new record level.
In a first for the USDA it is now publishing global figures excluding China. This has been an important measure of supply and demand for well over a decade, that is finally being recognised in USDA projections.
Not that it makes that much difference. Production excluding China is also up sharply, as is consumption, although stock levels will not move above the peak seen in 2017/18.
Behind the numbers is the projection a new record crop excluding China. Year on year the crop outside of China is tipped to increase by 45.37 million tonnes, as production recovers in the EU, Russia, Australia, Canada, Ukraine and Argentina.
The big upward moves are in the EU (up 16.58mt), Australia (up 5.2mt) and Russia (up 5.31mt). Production is also up in major importing countries. However, these are very preliminary numbers, with some concerns about parts of the EU crop, while other estimates for Russia put their crop well above the 77mt being used by the USDA.
What this USDA report has done, is focus the market on new season supply and demand, which in turn has reinforced the projections that have already been in the marketplace from the International Grains Council and the FAO.
Stocks outside of China are expected to rise by 11.83mt, and there will be fierce competition between all the major exporters to claim market share that was given up last year. On that front expect Russia to be very aggressive, to be the world's largest exporter for the third year in a row, and to dictate prices trends for much of the time.
During our harvest in 2018/19 CBOT futures were in the range between 500 and 530 USc/bu, or $A260 to $A270 a tonne. With global supplies set to grow faster than demand, we can expect pressure to remain on CBOT futures.
Current December CBOT futures are around $A240/t (450 USc/bu). Even if those prices hold into the end of the year, we are potentially looking at export based prices from SA close to $260/t. If we break free of a drought market in NSW, east coast prices would be similar, or at best, at a modest $5 to $10/t premium.
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