Both the USDA and the International Grains Council predict record 2020/21 marketing year world wheat production, record world wheat ending stocks, and a record world wheat stocks-to-use ratio. Yet between Aug. 10 and Oct. 19, KC December wheat contract prices increased $1.40. Wheat prices at Black Sea ports increased $1.20. What is going on in the wheat market?
In the August WASDE (World Agricultural Supply and Demand Estimates) report for the 2020/21 marketing year, world wheat production was projected to be 28.1 billion bushels. The October report increased world wheat production to 28.4 billion bushels.
Between August and October, the WASDE projections for world wheat ending stocks increased from a record 11.6 billion bushels to 11.8 billion bushels. The five-year average world wheat ending stocks is 10.1 billion bushels. More than adequate wheat is available to meet the world’s 2020/21 wheat needs, and projected wheat stocks have been increasing.
Between the August WASDE and the October WASDE, projected 2020 Russian wheat production increased from 2.865 billion bushels to 3.049 billion bushels. The five-year average Russian wheat production is 2.675 billion bushels. With higher Russian wheat production and lower Ukrainian wheat production, Black Sea (Russian, Ukrainian, and Kazakhstan) exports are projected to be about the same as during the 2019/20 wheat marketing year.
The Black Sea exporters’ wheat ending stocks are projected to be 468 million bushels, which implies relative tight supplies when considering Black Sea production of 4.446 billion bushels.
The U.S. supply and demand situation is different than the world’s situation. In the August WASDE, 2020 U.S. wheat production was projected to be 1.838 billion bushels compared to 1.826 billion in the October report (not much change). In August, 2020/21 U.S. wheat ending stocks were projected to be 925 million bushels compared to 883 million bushels in October. The five-year average U.S. wheat ending stocks is 1.073 billion bushels.
Hard red winter (HRW) wheat production for 2020 was projected to be 695 million bushels in the August report compared to 654 million in the October report. The change in HRW wheat production (36 million bushels) is a five percent decline. What is important, pricewise, is that the five-year average U.S. HRW production is 834 million bushels.
Another significant price factor is that projected 2020/21 U.S. HRW wheat ending stocks declined from 390 million bushels to 334 million bushels. The critical factor is that the five-year average HRW wheat ending stocks is 528 million bushels. The U.S. HRW wheat supply is relatively tight.
The world’s wheat supply situation is one of excess supply compared to the Black Sea Exporters’ and the United States’ wheat supply both being projected to be relatively tight.
For the last few months, wheat importers appear to be “buying ahead.” Egypt’s goal has been reported to import a six-month wheat supply compared to the normal three to four months’ supply. The result was record September Russian wheat exports.
One last positive price factor is the rumor that China may need to import wheat.
With potentially tight U.S. and Black Sea wheat stocks, drought conditions in Argentina, Russia, the U.S., and possibly the Ukraine, the market appears to be concerned about the 2021/22 wheat marketing year supply of HRW wheat. This concern has resulted in higher wheat prices.
It is possible that the fact that importing countries have bought ahead may result in relatively low wheat import demand later in the marketing year, which could result in declining wheat prices.
Probably the single most important price factor is the drought prediction. Significant reductions in 2021 Russian, Ukraine, and U.S. wheat production could result in significantly higher prices. Conversely, rain makes grain and normally results in lower prices.