World wheat stocks are expected to fall by 2024

World wheat stocks are expected to fall by 2024

Production complications in the main exporters would bring the stock/consumption ratio to more than ten-year lows. At the local level, caution prevails with a view to the new season.

The latest USDA monthly report, published on October 12th, adjusted downwards the expectations for global supply in the 2023/24 season. The production problems of important world wheat suppliers, such as Australia and Russia, would materialize in lower yields, leaving very tight final stock levels, while the year-on-year recomposition of North American production would not be able to compensate for the deficits in the rest of the world.

The projections for the Oceania country, according to the USDA, are 24.4 million tonnes, with a year-on-year fall of almost 40%. Australia has had an enviable production streak, exceeding 30 million tonnes of wheat per year for three consecutive cycles. However, adverse weather conditions would have a major impact on one of the main wheat exporting countries, which competes with Argentina at harvest time.

Russia would also suffer cuts in terms of production. Although starting from a very high base, a record of over 92 million tonnes harvested during the 2022/23 season, figures closer to 85 million tonnes are expected, to which are added doubts regarding the quality of the wheat as a result of the torrential rains during the Russian summer. Ukraine is in a similar situation. The percentage of wheat for milling is estimated at 20-30%, compared to 60% last year. In view of the continuing Russian threat to Ukrainian ports, the logistics and consequently the marketing of grain has become more than complicated by developing different routes for Ukrainian wheat.  As a result, local producers have preferred to protect themselves by storing the best quality grain to sell it to the mills, tending to export wheat with a lower protein content.

Australia, Russia, Ukraine and Argentina form part of the group of the eight main exporters, accounting on average for 86% of the international wheat trade, and among them the lowest levels of final stocks are expected since the 2012/13 cycle, with just 53.02 million tonnes, -13.5% less than the previous season and -16.6% behind the average of the last ten cycles.

As a result of lower production, G8 exports are expected to fall by 4% from the previous season and the pace of global marketing is also expected to be slower. Meanwhile, at the global level, ending stocks are projected to reach the lowest level since 2015/16.

Global consumption is projected to reach a record 804 million tonnes, mainly due to increased feed use of the grain, more than offsetting falls in direct domestic consumption. World demand, adding domestic consumption and imports, would reach 997 million tonnes, which together with a tighter supply would explain a stock/consumption ratio that would reach more than ten-year lows.

As a result of the new outlook shaped by the USDA report, prices in Chicago reacted upwards. In part also, renewed Chinese demand for US exports has helped to sustain the trend. The Asian giant has suffered heavy rainfall this year, with flooding in the Henan region, the main production area, conditioning the quality and quantity of grain available.

Looking at the long term, the price of wheat in Chicago has tended to return to its “normal” level, after the shocking prices traded during the last couple of years, which were affected by the conflict between two of the main producers, Russia and Ukraine.

Looking at the local level, and on the eve of a new wheat season that will formally begin on December 01st, production is projected at 14.3 million tonnes. As explained above, this figure fell below initial expectations as a result of the water deficit that affected the sowing and planting of the cereal. On the other hand, an additional 4.1 million tonnes would come from the remaining stocks of the current season.

Because of the climatic uncertainty and while awaiting further commercial definitions, anticipated sales amounted to only 1.8 million tonnes, a minimum in the series for this stage of the year, and of which more than half (56%) were made under the “to fix” modality. Thus, the proportion of committed merchandise is only 10% of the projected supply, well below the average of the last five wheat cycles.

The season pass, observing the last Wednesday’s adjustment quotations in the forward market, was around -23 USD, since the NOV23 Rosario Wheat quotation has increased as a consequence of the new exchange regime imposed at the beginning of the week. The possibility of accessing a differential TC for exports in general would not have been discounted by the market wheels before and considering that MATBA-ROFEX futures contracts are settled at the official exchange rate, the adjustment value climbed from 247 USD/tn last Friday to 265 USD/tn on Thursday of this week.


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