Cropping

Bulls quelled amid higher global wheat use, trade: USDA

Grain Brokers Australia, December 14, 2021

Harvesting Devil wheat at York in WA. Photo: Shannen Barrett, Intergrain

THE global wheat outlook for 2021-22 is for higher supplies, greater consumption, increased trade, and higher ending stocks in the 2021-22 marketing year, according to the USDA’s latest World Agricultural Supply and Demand Estimates (WASDE).

On the whole, this month’s report provided very little fodder for the wheat bulls, and the futures market was sold down accordingly. Last Thursday’s Chicago Board of Trade session saw the benchmark December 2021 futures contract close down 17.75 cents per bushel (c/bu) at 773.5c/bu, equivalent to A$396/t.

The contract did recover almost half of that loss in Friday’s trade, going into the weekend at 782c/bu, or almost A$401/t, after the dust quickly settled on the WASDE report. Traders in the US returned their focus to the potential impact of extremely dry weather across the US Southern Plains on next year’s US wheat harvest.

Australia pegged 2.5Mt higher

The USDA increased global wheat production by 2.61 million tonnes (Mt) to 777.89Mt, with the Australian wheat production forecast pegged 2.5Mt higher from 31.5Mt to 34Mt. Unsurprisingly, the USDA took its lead from the most recent Australian Bureau of Agricultural and Resource Economics and Sciences crop update, which pegged output a tad higher at 34.4Mt.

The recent wet weather may have decreased production in New South Wales with losses due to flooding and reduced test weight. However, many analysts had the crop bigger than last year’s record before the recent deluge. That is now unlikely, but production of 14Mt is still on the cards, albeit of much lower quality than originally expected.

The big change to Australian wheat production this year is in Western Australia. Total receivals into the CBH bulk-handling system have already surpassed that of last year, and there is still more than 25 per cent of the harvest to complete, the majority of which will be wheat. State-wide production north of 13Mt is definitely on the cards if the current yield trend continues.

Among the world’s other major exporters, Canadian production was raised 650,000t to 21.65Mt, in line with the latest Statistics Canada forecast, and Russian production was increased 1Mt to 75.5Mt. However, despite the increases, production levels for both countries remain well below that of the 2020-21 season.

The European Union wheat crop was bumped up by 300,000t to 138.7Mt, and production in China, the world’s biggest producer of wheat, was increased by 50,000t to 136.95Mt.

World consumption, stock and trade in wheat were each increased by approximately 2Mt.

Consumption

Australian consumption was increased from a ridiculously low 8Mt to an extremely conservative 8.5Mt, especially considering the volume of feed wheat now available on the doorstep of southern Queensland, Australia’s biggest feed wheat-consumption region. With cattle on feed numbers reportedly more than 1.1M head at the end of the September quarter and increasing, an expanding poultry industry, and solid milling-industry intake, domestic wheat demand has to be at least 9Mt, but probably closer to 9.5Mt for the 2021-22 season.

Global wheat consumption was increased by just under 2Mt in last week’s report to a record 789.35Mt. Among the movers were the EU, up 400,000t to 107.9Mt, Russia up 750,000t to 41.75Mt, China down 500,000t to 148.5Mt, and the South-east Asian nations of Indonesia, Malaysia, The Philippines, Thailand, and Vietnam collectively up 600,000t to 25.35Mt.

Stocks

Opening global wheat stocks for the current season were increased by 1.69Mt. Australia was the biggest mover, where 950,000t was added, but only by tinkering with the 2020-21 numbers. The USDA decreased Australian wheat exports in the 12 months to September 30 by 650,000t to 23.85Mt. In the same breath they also increased production by 300,000t to 33.3Mt, but still well shy of reality. The other significant global change was an increase of 890,000t to the EU’s 2021-22 starting number to 10.93Mt.

Trade

The gong for the biggest mover in global trade in last week’s report goes to Australia. The change in the Australian number accounts for nearly all the USDA 2.29Mt increase in world trade projection. It increased Australian wheat exports by 2Mt to 25.5Mt. It is a big number but certainly more than achievable. Australian wheat export shipments in October 2020 were 0.36Mt. In October 2021, they were 1.48Mt.

In November last year, national wheat exports totalled just over 500,000t. Last week, west coast bulk-handler CBH announced an all-grain November shipping record 1.17Mt, maybe 30pc of which would have been wheat. While the widespread rains have severely disrupted NSW and Queensland logistics, the old-crop shipping program has continued. Accordingly, wheat shipments for November may have also been around 1.5Mt.

That would put wheat exports at 3Mt in the first two months of the Australian marketing year, compared to 870,000t in 2020-21. As long as domestic wheat, regardless of quality, remains competitive into Asia in the second half of 2020 against new-crop Northern Hemisphere exports, then wheat shipments above 26Mt are feasible in 2021-22.

USDA is forecasting worldwide trade in wheat to increase by another 2.29Mt to a record 205.47Mt. This follows a 3.53Mt hike in global exports in the November WASDE report. On the importer front, the three big movers were Iran, up 1.5Mt to 7Mt, South Korea, up 300,000t to 4.4Mt and China, down 500,000t to 9.5Mt.

From a major exporter perspective, trade out of the US was decreased by 550,000t to 22.86Mt, the lowest since 2015-16 when 21.17Mt was exported. Prior to that, one must scroll back 50 years to 1971 to find a lower US wheat-export number. The USDA cited a slowdown in Hard Red Winter and Hard Red Spring sales.

There was a slight change to EU wheat exports, up 500,000t to 37Mt. This is at odds with leading analyst Stratégie Grains, which recently cut its demand forecast for the EU, suggesting high prices were urging leading industrial processors to switch to maize. Ukraine exports were also adjusted 200,000t higher to a record 24.2Mt.

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