World wheat ending stocks have ballooned to a record 268 MMTs! Since 2012, world wheat stocks have risen by an amazing 50%. And since 2015, world end stocks have been pushed incrementally higher in almost every USDA monthly report. As a result, CBOT and world fob wheat prices have been depressed.
However, China’s share of world wheat stocks has risen incredibly over the last decade, and in 2017 the USDA projects China to hold a record 48% of the world’s total stored wheat supply. This wheat is not in an exportable position, but like Russia, Chinese wheat yields have been rising sharply and at some point, China will have to clear out its inventory.
The issue ahead is that the market is no longer providing incentive for non US wheat producers to expand acreage. However, we doubt that a substantial decline in wheat stocks lies in the offing. World wheat demand would have to expand for such a stocks decline.
Russian wheat yields in 2017 nearly matched those of the west at 45 Bu/Acre, and similar yields can be expected in the years ahead with normal weather. But due to oversupply and a 5% rally in Russia’s currency since early December, Russia’s domestic market in rubles has been weak. ARC doesn’t expect Russian wheat farmers to cut planted areas, but further expansion is unlikely.
Russian wheat seeding has expanded 9 Mil Acres in the last three years, or roughly 15%. But, with domestic price down 15-17% from a year ago, acreage in 2018 and perhaps beyond will be unchanged.
The US will plant a bit more spring wheat, Australia will plant a bit more amid rising prices there, but overall the world wheat market is not signaling the need for new global acreage.
ARC projects world wheat area less China at 196 Mil hectares, up marginally from 2017, but well below 2015 & 2016. Then assuming trend yield and trends in consumption (which are mild), the most probable world wheat balance sheet (less China) is below. Domestic food use has shown signs of better growth as emerging economies perform. GDP forecasts for emerging markets in 2018 is rather solid, and places like Latin America and the Black Sea have rebounded particularly well. Higher crude prices will aid purchasing power in North Africa & the Middle East, and so wheat demand growth will continue, albeit slowly. The point is that amid cheap wheat prices and rising food use, world end stocks minus China are forecast at a 6-year low 130 MMTs. Confirmation of trend yields in the Northern Hemisphere are required to pull spot futures below $4.20 for any length of time. But adverse Black Sea weather is needed for a sustained recovery.