Wasde: Wheat prices fall as record output, carryover expected

12 May 2020 | Tom Houghton

Global wheat prices fell Tuesday as the USDA forecast another year of record-breaking global output in 2020/21 and demand losses that will leave carryover stocks at the end of next year far higher than had been expected.

Although the trade had generally expected another year of global record-breaking production, wheat prices in Chicago slumped to their lowest level in a week, with the July contract down 1.2% on the day to $5.11/bu by 1240 Eastern Time.

And the rolling front month Kansas City contract slumped 1.8% to its lowest level in six weeks.

In the US, the Wasde predicted total wheat production at above industry expectations at 1.866 billion bushels (50.8 million mt), a figure that was still below last year’s 1.92 billion bushels.

“The 2020/21 US wheat crop is projected… down 3% from last year on lower yields offsetting higher harvested acreage,” the USDA said.

Global output for the coming market year was put at an all-time high of 768.5 million mt.

China’s production was forecast 1.4 million mt higher at 135 million mt, while India is expected to fall 600,000 mt 103 million mt.

Other figures were largely in line with its attache forecasts from around the world.

Australia was put at 24 million mt, bouncing back from two years of output lost to drought and last year’s 15.2 million mt figure.

The EU fell to 143 million mt from last year’s 154.8 million mt.

Russian output was called at 77 million mt, with Ukraine at 28 million mt, Kazakhstan at 13.5 million mt, Canada at 34 million mt, and Argentina at 21 million mt.

Uncharacteristically – although not completely unexpectedly – it was the demand side of the equation that made the bear case for wheat, as the market was left to contend with the fallout of the Covid-19 outbreak.

US end stocks for the 2019/20 marketing year were 200,000 mt higher than the April figure at 26.6 million mt as a surge in flour demand last quarter was offset lost feed demand.

Globally, carryover figures went in the opposite direction with the current marketing year was called at 295.1 million mt, compared to 292.8 million mt last month.

That is likely to be exacerbated in the US, where a glut of cheap corn is expected to head to feedlots at wheat’s expense.

“Total 2020/21 domestic use is projected down nearly 3% on reduced feed and residual use as record-large 2020/21 corn supplies are expected to displace wheat for feeding,” the USDA said.

US end stocks for 2020/21 called at 24.7 million mt, well above analyst guesses at 22.3 million mt.

And diminished demand looked set to persist around the world throughout the coming year, with global carryover at the end of the coming market year was put at a massive 310.1 million mt, implying an all-time high stocks-to-use ratio around 0.41.