The July World Agricultural Supply and Demand Estimates (WASDE) Report produced by the United States Department of Agriculture (USDA) was much anticipated, with most pundits expecting increasing supplies. What they got was increased demand.
With the US winter wheat harvest well underway, passing halfway last week, they are starting to get a good idea of how supplies will play out over the coming year. Given the reported yields, the market was expecting some sort of increase in US wheat production.
There was an increase in wheat production, but it was just 0.21mmt, and was more than wiped out by increasing exports, leading to lower ending stocks in the US. The story for the world balance sheet was similar. World production was basically steady, consumption up, and world stocks down.
There were minor alterations in wheat production, down 1mmt in Ukraine and Canada, up 0.5mmt in Russia, and 0.7mmt in the EU. The USDA held Australia steady at 31mmt, which is 0.4mmt higher than the Australian Bureau of Agricultural and Resource Economics (ABARES) prediction.
Figure 1 shows wheat supply and demand are still quite finely balanced. The market seems to be happy that supplies are just enough to cover rising demand, but it does leave markets open to supply shock.
The USDA stripped 2.3mmt out of corn production estimates, which led to a 1mmt decrease in consumption. Ending stocks fell to 272mmt and stocks-to-use to a 12-year low of 21.3% (Figure 2). Despite all this, the market eased after the WASDE report was released. The market appears to be focusing on record production, not record consumption.
Rapeseed/Canola was the crop we are interested in, which saw an increase in production. Canola production is expected to reach an all-time high, and outstrip consumption, with a small increase in ending stocks to result. There will also be a slight uptick in the stocks-to-use ratio to 10.6%.
What does it mean?
With wheat and corn production seeing only small changes, solid global supplies should keep prices under pressure, even as consumption edges higher. Canola supplies are forecast to improve slightly, adding some comfort to balance sheets. Tighter stocks remain a feature across grains, but for now, markets appear content that supply is adequate, leaving prices drifting lower unless weather or geopolitical shocks emerge.
Key Points
- The July WASDE update showed small movements in production, and increased consumption for wheat and corn.
- Canola supplies are forecast to improve slightly.
- Despite tighter balance sheets, prices continue to drift lower.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: USDA WASDE, Mecardo
