Global wheat supply: good but not good enough

The United States Department of Agriculture (USDA) released its world agricultural supply and demand estimates (WASDE) report for the crop marketing year 2011-12 last Thursday. Crop marketing year (or MY) is a 12-month period which begins with the new crops harvest. MY may differ across crops and regions. The report incorporated statistical reports produced by USDA and other government agencies to estimate production, supply, and demand for wheat, coarse grains, rice, sugar, livestock and cotton for 190 countries and regions around the world. USDAs outlook for wheat trade and consumption in MY12 (2011-12) is influenced by growing supplies of the commodity, tighter corn supplies in the United States and increased use of wheat in feed. The report projects higher global wheat supplies for the MY12, at 993.2 million tons. Adequate wheat supply has been attributed to higher leftover stocks and drastic rise in projected production in major wheat growing countries. Global wheat production estimate of 672.1 million tons for MY12 will be driven by major exporting nations like Russia, Ukraine and Kazakhstan, along with India, China and European countries like France, Romania and Bulgaria. Favourable weather conditions are cited as the reason for higher-than-expected yields in MY12. The USDA report projects world wheat ending stocks for MY12 at 188.9 million tons, with over one-third available with China. United States will continue to be the biggest exporter of wheat, providing roughly 23 percent of global exports in the same year. The report also gives a fair idea about Pakistans wheat outlook. Just like MY10 and MY11, Pakistan will have ample stocks to cater to its domestic needs in MY12. Wheat production is projected at exactly 24 million tons - 0.42 percent higher than in MY11. Domestic consumption is estimated to rise by 0.86 percent to reach 23.4 million tons. Ending stocks will, however, be six percent lower than MY11. Pakistan is not exporting wheat at the moment due to unviable international prices and nothing concrete can be said about the future, even though WASDE includes one million tons of wheat exports in its MY12 projections for Pakistan. With adequate supply projections; wheat prices should ideally be stable in the future. However that does not seem to be the case. On the Chicago mercantile exchange (CME), wheat futures for the month of September rose to $7.02 per bushel on the release of the report. It must be noted that wheat prices have previously been on a downward run since peaking out in February this year. This paradox could possibly be due to the interplay of corn and wheat prices in international markets. The USDA report also slashed global corn production for MY12 by roughly 12 million tons. Resultantly, corn futures rose to $7.18 on the reports release on Thursday, trading at a premium over wheat futures. Wheat and corn are both used as animal feed and one can be substituted for the other. International grain analysts are certain that despite a neutral wheat outlook in the USDA report, wheat prices will likely be pushed higher by the corn and soyabean markets, increased substitution, and lower supply of high-quality wheat. It seems that tight global corn supplies will keep the pressure on wheat prices in the Americas, which could trickle down to Asian trade as well.

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Global Wheat Figures (million metric tons)
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                                     Supply             Use
                     Beginning   Production  Imports*  Domestic  Exports*    Ending
                         stocks                                              stocks
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MY12 (P)   Pakistan        3.41       24.00      0.20     23.40      1.00      3.21
           Global        191.74      672.09    129.38    674.96    131.33    188.87
MY11 (E)   Pakistan        3.56       23.90      0.15     23.20      1.00      3.41
           Global        198.86      648.19    128.82    655.31    130.05    191.74
MY10       Pakistan        2.69       24.00      0.17     23.00      0.30      3.56
           Global        166.44      684.40    133.58    651.97    135.80    198.86
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* Global imports and exports may not balance due to differences in marketing years, grain in transit, and reporting discrepancies in some countries Source: World agricultural supply & demand estimates, USDA (August 11, 2011)