The United States Department of Agriculture released its latest World Agricultural Supply and Demand estimates last week, and while the global wheat production estimate for 2023/24 was down compared to the July update, the changes were largely expected and had essentially been baked into market rationale and global values.
This month’s global wheat outlook is for lower opening stocks, decreased production, reduced consumption, declining international trade, and lower ending stocks compared to the July update. The USDA tinkered with the old crop numbers resulting in a 1 million metric tonne decrease in worldwide opening stocks to 268.3MMT. With production in 2023/24 lowered by 3.3MMT to 793.4MMT, still 1.8MMT higher than in 2022/23, we have a 4.3MMT reduction in global supplies to 1,061.7MMT. This compares to the USDA’s 2022/23 global wheat supply of 1062.6MMT.
The USDA trimmed 2.2MMT of its July wheat export number to land on global trade of 209.4MMT this month, down 4.2 per cent from 218.6MMT in the 2022/23 marketing year. All this adds up to a worldwide ending stock projection of 265.6MMT, 0.9MT lower than July and 2.7MMT less than this season’s revised opening stock number. This will be the lowest global wheat carry-out figure since 2015/16 when it was 247MMT, and global consumption has increased more than 10 per cent in the ensuing years.
Russian wheat production unchanged month-on-month at 85MMT seems reasonable given most of the local analysts and consultants are thereabouts or even a little higher in recent weeks. Respected Black Sea agricultural consultancy SovEcon is currently calling the Russian wheat production 87.1MMT compared to 104.2MMT last season. The USDA is yet to subscribe to such a big crop in 2022/23, leaving its old crop estimate at 92MMT. The crop was reportedly around 42 per cent harvested midway through last week against 31 per cent a year earlier.
The USDA increased exports by 0.5MMT to 48MMT, which is certainly possible given the pace of exports in the 2022/23 marketing year. SovEcon raised its 2023/34 export forecast by 0.9MMT to 48.1MMT last week. The world needs Russian exports, and Russia yearns for the hard currency, so any disruptions to the flow of grain from Russian ports could be explosive for global wheat prices. The Russian military is inspecting all ships before they enter the Kerch Strait for fear they could be floating bombs. Rumours are also circulating that the threat of attacks on Russian Black Sea ports and the Kerch Strait Bridge could force Putin to reconsider the Black Sea grain corridor deal.
Elsewhere in the region, the USDA increased Ukrainian wheat production by 3.5MMT to 21MMT on the back of updated planted area estimates from Ukraine’s Ministry of Agriculture. Timely rainfall and favourable temperatures in most regions also raised yield prospects. Exports remain unchanged at 10.5MMT, which will rely heavily on alternate export routes through Europe with the Black Sea corridor currently closed. Production in Kazakhstan also increased, with the USDA landing on 15MMT, 1MMT higher than July but 1.4MMT lower than last season. Exports at 9.5MMT were unchanged compared to both last month and last season.
Despite the reports of widespread crop losses in late May and June, the USDA only shaved 3MMT off Chinese wheat production for 2023/24. The output of 137MMT now sits slightly lower than the 137.7MMT reportedly produced last season but much higher than where the market was expecting when the flooding was reported. The token reduction allowed the USDA to leave imports at just 12MMT, 1.3MMT less than in 2022/23, but this is widely expected to be higher by season’s end.
US wheat production was unchanged compared to July, but there were some changes among the classes. Hard Red Winter wheat production increased slightly, Soft Red Winter wheat output increased by four per cent, and spring wheat production decreased by six per cent. US export projections were reduced from 19.7MMT to 19.1MMT.
The USDA left the Australian wheat production number at 29MMT this month. While this represents a 27 per cent year-on-year reduction in output, it seems a fair prognosis given seasonal growing conditions across the country this year. Some regions are as good as last year, but others suffer from a lack of rainfall. In many instances, the subsoil moisture is good, but more rain is needed to join it up with the surface moisture band. Exports of 21.5MMT, also unchanged from July, are certainly achievable, but the opening stock number of 2.8MMT is probably 35 per cent of reality, and the closing stock number of 2.8MMT is around half of reality.
Drought conditions continue to intensify across the Canadian Prairies, leading the USDA to cut its Canadian wheat production forecast from 35MT in July to 33MMT this month, which is now almost 1MMT lower than last season’s output. Accordingly, exports were also trimmed by 2MMT compared to July to 24.5MMT, 1MMT lower than 2022/23.
Unusually hot and dry weather conditions through the spring and summer saw soil moisture deficits grow and yields fall across much of the European Union, and now excessive rainfall in some regions during harvest is seeing an increase in quality downgrades. The USDA has reacted by trimming 3MMT off the production outlook over the last month to land on 135MMT in August, still almost 1MMT higher than last season. However, the USDSA left exports unchanged at 38.5MMT, against 34.5MMT last season, a tall order if the Russian program continues unimpeded.
Surprisingly, the USDA left Argentinian wheat production and exports unchanged at 17.5MMT and 12MMT, respectively. While this is a huge improvement on last season, the drought conditions that decimated last year’s crop largely remain in many winter cropping regions. Soil moisture reserves have recovered somewhat in the past month, but large swathes of the planted area were seeded into parched soils and have been stressed since emergence.
The two biggest surprises in last week’s global supply and demand revision were leaving Indian wheat production unchanged at 113.5MMT, which allowed the USDA to leave imports at just 1MMT. The production number is far too high compared to local reports, other than those of the optimistic government, which is facing an election next year.
The government said it would offer 5MMT of wheat from state reserves to large domestic millers to cool prices, but in reality, India will need to import substantial quantities of wheat before the next harvest to keep food inflation in check. With demand from the growing middle classes increasing at a much quicker rate than production, India will be dropping the 40 per cent wheat import duty in the not-too-distant future and, like China, will likely become a regular, and sometimes substantial, entrant on the demand side of the global balance sheet in coming years.
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