Chad Weigand, U.S. Wheat Associates Market Analyst
The recent Russian drought and government ban on wheat exports set off a market reaction one might only imagine in a true wheat supply crisis. The lingering questions remain fixed on the supply picture in spite of the fact that world wheat production reached its third highest level for 2010/2011. Indeed, USDA’s Quarterly Grain Stocks Report this week confirmed that U.S. wheat stocks are abundant and sufficient to meet demand left after Russia closed its wheat store.
With U.S. carryover stocks from 2009/2010 reaching their highest level since 1988/1989 and another large wheat crop this year, USDA estimated U.S. wheat stocks at a level not seen since 1987. Wheat stored in all positions totaled 66.9 million metric tons (MMT) as of Sept. 1, up 11 percent from a year ago and 30 percent above the five-year average.
Commercial stocks accounted for the entire increase this year, jumping from 37.4 MMT in 2009 to 44.4 MMT this year. USDA indicated that on-farm stocks were down slightly from last year, declining by one percent to 22.5 MMT.
The largest increases in combined on- and off-farm stocks came primarily from hard red winter-producing states, with Texas and Kansas showing the greatest boost in total stocks. Texas wheat stocks stored in all positions grew by 1.6 MMT, a 77 percent increase from 2009, while Kansas stocks increased by 1.4 MMT, 14 percent above last year’s level.
With USDA now projecting 2010/2011 U.S. production at 60.4 MMT, the June-to-August 2010 indicated disappearance (combined domestic use and exports) stands at 20.0 MMT, up 12 percent from a year ago. The U.S. export pace is the main reason; exports are 1.7 MMT or 35 percent above last year, while total export sales for the first quarter of 2010/2011 were 15.0 MMT, up 62 percent from the same time in 2009/2010 and 22 percent above the five-year average.
Wheat exporters in the European Union have also benefitted from the Russian situation. The European Commission reported that export licenses were granted for 6.4 MMT of wheat from June through August, up 36 percent from a year ago. Unlike the U.S., however, greater export demand is straining EU stocks and could shift additional sales to U.S. milling wheat the rest of this marketing year.
USW Regional Director for Europe Goris van Lit said that with German milling wheat supplies down sharply from a year ago, France would have to supply more high quality wheat within the EU leaving less stocks available for export outside the EU. He believes that milling wheat will make up only a fraction of EU ending stocks for 2010/2011.
Fortunately, as USDA’s report indicated, the U.S. is stocked to fulfill additional demand throughout 2010/2011. The challenge in meeting additional demand will be logistics as U.S. exporters face tight loading capacity due to high demand not only for U.S. wheat, but also for corn and soybeans.
The full stocks report is accessible at http://usda.mannlib.cornell.edu/usda/current/GraiStoc/GraiStoc-09-30-2010.pdf.