Wheat. World Markets and Trade. August 2019 – USDA Aug. 13, 2019
OVERVIEW FOR 2019/20
Global production is lowered this month mainly on smaller crops in the European Union, Kazakhstan, Russia, and Turkey. Global trade is raised marginally, highlighted by stronger import demand for the Philippines and Turkey. Higher exports for Argentina, Ukraine, and the United States offset reductions for the European Union, Kazakhstan, and Russia. The projected U.S. season-average farm price is down $0.20 to $5.00.
Prices for most classes of U.S. wheat fell during the month of July, pressured by advancing winter wheat harvests and weakness in corn prices. Hard Red Winter (HRW) dropped $15/ton to $212, while Soft Red Winter (SRW) plummeted $19/ton to $212. Hard Red Spring fell $11/ton to $228. Soft White Winter (SWW) lost only $2/ton to $231, giving it now the rare distinction of being the most expensive of the four quoted classes. SWW was relatively insulated from price movements as this class has relatively little direct international competition, particularly in light of tight nearby Australian supplies. Furthermore, SWW is not commonly used for feed, so pressure from falling corn prices is less significant.
Global: Overall, exporter prices dipped during the month of July, pressured by the ongoing winter wheat harvests in major Northern Hemisphere exporters. U.S. HRW showed the steepest drop based on generally good news of harvest progression and weakness in U.S. corn markets. EU prices also declined on the advancing harvests in major wheat-producing countries, particularly France. Black Sea wheat declined only $2/ton as dry conditions in Russia have reduced yields. Further, a slow pace of farmer selling continues to underpin Russian prices. Argentina and Australia prices fell as well but remain uncompetitive based on seasonally tight supplies.
Month Ending Prices for Major Wheat Exporters
Note on FOB prices: Argentina- 12.0%, up river; Australia- average of APW; Fremantle, Newcastle, and Port Adelaide; Black Seamilling; EU- France grade 1, Rouen; US- HRW 11.5% Gulf
Global Wheat Feed and Residual Projected at Record High in 2019/20
Global wheat feed and residual consumption is forecast to surge to a record high in 2019/20 driven by record global production and competitive prices relative to corn. Global wheat consumption overall is primarily driven by food, seed, and industrial (FSI) use, which tends to rise every year on population and economic growth. Feed use, on the other hand, is the more variable category of consumption as it is partly dependent on the relative price competitiveness of wheat with other feed grains, particularly corn.
Rising production, over the long-term, tends to support stronger feed and residual use. Over the last decade, China’s rising domestic wheat production and growing livestock sector have contributed to surging levels of wheat feed. There has also been a rising tendency to incorporate wheat into feed rations in Southeast Asia based on strong growth in its meat and aquaculture industries. In Indonesia and Thailand specifically, domestic policies that indirectly support the price of corn have also added impetus to stronger wheat feeding. Russia and Ukraine, with their bumper wheat crops and competitive export prices, have become key suppliers for the feed sectors in that region.
While long-term trends have contributed to overall growth in feed and residual use, there are also short-term dynamic changes occurring. Feed use in 2019/20 is projected up more than 10 million tons just from last year with global production projected to set a record this year. The largest year-to-year boost in feed and residual is for the European Union. Wheat feed use in that region was low in 2018/19 based on a small crop but rebounding production this year is expected to bring wheat feed consumption back to a relatively normal level. U.S. wheat feed is also forecast up because a smaller and delayed corn crop is making wheat increasingly price-competitive in feed rations, especially during the summer months. U.S. wheat feed use was particularly low in 2017/18 and 2018/19 based on smaller domestic wheat crops and abundant corn supplies. Feed use is also expected stronger in India this year based on a bumper crop and relatively high corn prices. These cases are evidence of a changing global price dynamic between wheat and corn, which is pushing wheat feed use to an all-time high this year.
India Wheat Stocks Soar Again, Yet Exports Remain Flat with High Prices
Throughout the years, the Government of India (GOI) has implemented some notable policy changes to address supply concerns that has resulted in major swings in stocks and drastic shifts in India’s trade position. For example, the GOI’s 2007 decision to ban exports and eliminate its import duty resulted in ballooning supplies. When stocks grew to levels far exceeding the desired buffer levels, the GOI lifted its export ban and auctioned its stocks which caused exports to surge in 2012/13. Stocks gradually returned to desired buffer levels; however, supplies tightened again in 2016. The GOI eliminated its import duty but quickly reapplied it once supplies stabilized. Imports are projected to remain low at 20,000 tons, a result of the GOI’s April 2019 policy change to raise import duties from 30 percent to 40 percent.
Over the past 3 years, favorable weather conditions, combined with continued increases in India’s Minimum Support Price, have led to consecutive bumper crops. India’s 2019/20 supplies are at a record level based on record production at 101 million tons and abundant carryin stocks. Despite massive supplies, India’s exports are projected to remain low due to its high domestic prices relative to other suppliers. Current export markets are almost exclusively neighboring landlocked countries, such as Nepal, that have few alternative suppliers. Even with growing consumption, India’s ending stocks are estimated at nearly 20 million tons, the highest since 2012/13 when it last shifted from being a net importer to a net exporter. While that sudden surge of exports coincided with the removal of the export ban, it remains to be seen how exports could rebound in the current price environment. Although there are no export restrictions currently in place, it would be difficult for India’s wheat to compete on the international market given its relatively high prices.