Global wheat trade expected to set new record

Increase represents availability of large supplies and continued growth of global wheat consumption.

A fact that may be undervalued in a market fixed on supply news is that the trade volume of wheat — the world's most traded grain — is on a steady increase, Stephanie Bryan-Erdmann, U.S. Wheat Associates market analyst, said.

In its latest round of estimates, the U.S. Department of Agriculture now expects that 2016-17 world wheat trade will reach a record-large 175 million metric tons (6.42 billion bu.). Along with rising global demand and a potential shortfall of milling-quality supplies, Bryan-Erdmann suggested that wheat buyers would do well to watch for any price effects and act quickly to cover their needs at the best value.

In its October “World Agricultural Supply & Demand Estimates” report, USDA noted that, if realized, world wheat trade would be 9% greater than the five-year average of 160 mmt (5.86 billion bu.). The trade volume increase represents availability of large supplies and the continued growth of global wheat consumption, Bryan-Erdmann said.

USDA expects total consumption to increase for the fourth consecutive year and reach a record 731 mmt (26.8 billion bu.), compared to the five-year average of 694 mmt (25.5 billion bu.). That includes estimated feed wheat demand growing 6% to a record-high 145 mmt (5.32 billion bu.).

“Rain increased winter wheat yields but also hurt milling quality in many production areas,” Bryan-Erdmann noted. “In turn, lower prices are making feed wheat more competitive with corn.”

USDA expects 2016-17 world wheat production to reach 744 mmt (27.3 billion bu.), up 1% from 735 mmt (27.0 billion bu.) in 2015-16 and 5% above the five-year average. If realized, it would be the fourth consecutive year of record world production. USDA projects that production will increase in six of the eight major exporting countries.

Record-large world carry-in stocks are adding to the global surplus, resulting in the largest estimated world wheat supply on record. China is expected to hold 46% of the total supply by the end of the marketing year.

USDA estimates 2016-17 world carry-in stocks at 240 mmt (8.80 billion bu.), up 11% from last year and greater than the five-year average of 196 mmt (7.22 billion bu.). The total world supply will reach a projected 984 mmt (36.1 billion bu.), up 24.1 mmt from the record set in 2015-16 and 9% above the five-year average of 903 mmt (33.2 billion bu.).

The ample world supply will help meet strong global wheat demand, Bryan-Erdmann noted. According to USDA's trade forecast, the U.S. will end 2016-17 with a 15% market share of the global wheat trade. This is up from the 2015-16 figure of 12%, the lowest on record, but still below the five-year average of 17%. USDA now expects U.S. wheat exports to reach 26.5 mmt, up 26% year over year.

USDA predicts that the majority of top U.S. wheat customers will import about the same amount or slightly more wheat in 2016-17 than in the prior year. Japan, the top U.S. customer over a five-year period, will import an estimated 5.8 mmt (213 million bu.), up 1% from 2015-16 but 5% less than the five-year average. USDA expects imports by Mexico to decline 4% year over year to 4.6 mmt (169 million bu.), but imports by the Philippines should increase 3% to 5.0 mmt (184 million bu.). Imports by Nigeria are expected to remain unchanged year over year but are up 3% from the five-year average. South Korea's imports will increase 13% to 5.0 mmt (184 million bu.).

USDA expects Brazil to import 11% less wheat in 2016-17, but the origin of those imports will also change. Argentina — Brazil's top supplier — will export 12% less wheat in 2016-17, so Brazil will need to shift to other origins. Year-to-date U.S. wheat exports to Brazil are expected to total 995,000 mt, nearly double total U.S. sales to Brazil in 2015-16.

USDA also expects India and Morocco to import more wheat after drought hurt their domestic production. India is projected to import the largest wheat volume in a decade this year after back-to-back years of drought. USDA estimates that India's wheat imports will grow to 3 mmt in 2016-17, compared to the five-year average of 116,000 mt. India is the second-largest producer and consumer of wheat in the world (behind China), producing an average of 91.5 mmt of wheat each year. India's beginning stocks of 14.5 mmt are 23% below the five-year average of 18.9 mmt. However, its wheat production rebounded 4% year over year to 90.0 mmt, which is still 1.5 mmt below the five-year average.

According to USDA, Morocco's wheat production will fall 66% year over year to 2.73 mmt, compared to the five-year average of 6 mmt. Consequently, Morocco's imports are expected to reach 5.00 mmt in 2016-17, an increase of 13% year-over-year and 25% greater than the five-year average.

While global wheat supplies are large, Bryan-Erdmann said the quantity of milling quality wheat is tightening. “Continued growth in wheat trade means increased competition for that smaller, high-quality wheat supply — a market dynamic that could push prices higher,” she said.

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