Has the USDA provided any surprises?

Market Morsel

The monthly ‘World Agricultural Supply and Demand estimates’ by the USDA were released overnight. The last one of 2020, and has it brought any surprises?

Global wheat production increased by 1.3mmt to 773.66mmt. This production level is a record level. The past decade has been solid for wheat production with nine of the top ten production years.

Demand for wheat is indeed increasing, however not at a fast enough rate to use all production. This has led to world stocks reaching record levels.

The ending stocks for wheat were down 3.95mmt to 316.5mmt. It is always important to reiterate that more than 50% of these stocks are (on paper) held in China. These stocks are unlikely to be made available to the global market.

Australian wheat estimates were increased from 28.5mmt to 30mmt. This remains below ABARES forecasts and the majority of commercial estimates which rise as a high as 34.5mmt.

There were further slight revisions with increases to Russia (+0.5mmt) and Canada (+0.2mmt), which are not surprising.

As we have discussed in the past, wheat supply and demand is neutral to bearish. However, it is corn which is the primary driver at present. At the end of the year, there are generally little in the way of room for changes to production. It is mostly set in stone.

Expectations for larger imports into China from 13mmt to 16.5mmt, which would be record levels, and well above the 7.2mmt before high tariffs hit.

The Chinese government have however kept import forecasts for corn at 7mmt – but we will take that figure with a pinch of salt.