There is a lot of wheat in the world. More, it seems, each month. For the seventh month in a row, the U.S. Department of Agriculture (USDA) increased its 2011/12 global wheat supply estimate as part of its monthly World Agricultural Supply and Demand Estimates (WASDE) report. In the report released Jan. 12, USDA estimates global supplies at a record 891 million metric tons (MMT), up 2.7 MMT from last month. Markets reacted negatively to the bearish report last week, even though it only reconfirmed previous estimates.
World production is a major contributing factor to such large global stocks, setting a record for three of the last four years. This year, USDA expects a new record of 692 MMT global production. Total production estimates increased 2.5 MMT from last month, including a 1.5 MMT increase in Kazakhstan to 22.5 MMT due to nearly perfect growing season weather. Modest production increases in Russia and Brazil accounted for the rest of the increase. USDA now estimates total Black Sea production at 114 MMT, up 175 percent from last year when major drought greatly cut production. Ample supplies remain despite four consecutive years of record demand. Total world consumption estimates are up 4 percent from last year to 681 MMT, including a record 131 MMT in feed wheat demand. The only change in consumption estimates this month was an additional 1.0 MMT of feed wheat usage in Kazakhstan and a 500,000 metric tons (MT) reduction in U.S. domestic consumption.
With so much wheat available and such high demand, it follows that world exports are also strong. USDA expects total world trade to reach 139 MMT, which would be the second largest on record if realized. A 500,000 MT drop in Australian exports offset a Russian increase of the same amount, putting estimates for those countries at 21.0 MMT and 19.5 MMT, respectively. Estimated U.S. exports increased 700,000 MT raising the current projection to 25.9 MMT. Higher sales expectations for hard red winter (HRW), hard red spring (HRS) and soft red wheat (SRW) more than made up for reduced sales expectations for white wheat.
Such abundant supplies of wheat pressured prices and weighed on the futures markets last week. In the two days following the report’s release, March futures contracts dropped between 2 and 6 percent. The drop is consistent with a historical trend in which wheat markets have difficulty sustaining prices when the global stocks-to-use ratio (ending stocks divided by total use) is greater than 30 percent. The current global stocks-to-use ratio stands at 31 percent.
The January WASDE did not contain any new or surprising information with regard to wheat. The supply and demand situation has been bearish for wheat all year, but outside factors have created market rallies. Tight corn stocks, the fluctuating strength of the U.S. dollar and uncertainty in global financial markets all have been major influences on wheat markets so far this marketing year. While price movements will remain unpredictable in the coming months, the large amount of wheat in the world and increasing wheat usage is certain.