The WASDE might not be as bearish as the headline numbers suggest.

Grain | 13th October 2020 | By Andrew Whitelaw

The Snapshot

  • Global wheat stocks are at record levels.
  • The majority of stocks are held in China/India.
  • The top exporters have seen their stock levels drop 12mmt from record levels in 2017
  • The stocks to use on a global level is very bearish.
  • The stocks to use without China or of the major exporters points towards a more average picture.
  • The global picture for wheat stands on a precipice, and major issues to one or two of the major exporters could result in fireworks.
  • It’s still early days for the 2021 crop, and anything could happen.

The Detail

At TEM, we delve into the data to see what it tells us, to provide insights into the market that can be used for making decisions (see our process here). Through looking at the underlying data, which makes up the headline numbers, it can provide interesting insights.

The stocks to use (STU) ratio provides an overview of the positioning of wheat, a higher STU represents a market which is well supplied and vice versa.

“The market is well supplied – or is it?”

The headline numbers paint a rosy picture which is very bearish, with the STU at a very healthy 43%. This means that the world is sat on stocks which would meet nearly half of annual consumption.

When you delve into the numbers, the picture changes. Far from being record levels, the image looks more average. This can be seen with both the global STU (minus China) and the STU of the major exporters being close to the twenty-year average.

An average outlook is a lot less bullish than record stocks to use.

The world is sitting on record stocks. At the end of this year, the world is set to be hoarding 321mmt of wheat. An exceptionally high level, we have spoken before about how a large percentage of global stocks are purportedly held in China & India (see here).

In addition to a large volume of stocks held in two nations, which typically are not huge exporters, there is also the issue of the exporters. The major importers are sitting on large stocks (64mmt) however, they are lower than they were in 2017 (76mmt).

As we further delve into the numbers, we can see that the percentage of wheat stocks held by the major export nations are at very low levels.

The percentage held has dropped as overall stocks increase. The question now remains, are those global stock figures accurate?

There are rumours of flood damage to Chinese grain storages, and question makes around their actual stock levels. If either of these is true, it points to a situation which could shift very quickly.

Overall the world has had good production during the past decade. The law of averages says that we are due a production hiccup. There is still a long way until next harvest though, and anything could happen between now and then.

Tags

  • WASDE
  • USDA
  • Wheat