USDA Report Underlines Global Grain Supply Glut

09/12/15 -- EU grains close mixed, with the December WASDE report from the USDA providing little in the way of fresh impetus, or market-moving direction - the world still has very ample supplies of wheat, coarse grains and soybeans heading into 2015/16.

At the close, Jan 16 London wheat was up GBP1.05/tonne at GBP113.15/tonne, Mar 16 Paris wheat was up EUR0.50/tonne at EUR177.00/tonne, Jan 16 Paris corn was EUR1.25/tonne higher at EUR164.75/tonne, whilst Feb 16 Paris rapeseed fell EUR2.25/tonne to EUR377.00/tonne.

"The projected glut in 2015/16 global wheat supplies is pressuring export prices to the lowest level since July 2010. While world production and consumption are forecast at a record and global trade at a near-record, stocks continue to build. Although lower prices are stimulating additional demand, it is not enough to offset burdensome supplies. Exporter stocks are generally available to the world, and are therefore inversely related to global prices," the USDA said.

They raised world wheat production by 2 MMT to a new record 735 MMT. Most of that (1.6 MMT) came from Canada, although there was yet another tweak higher in the size of the EU-28 crop, taking that up to a fresh all-time high of 157.7 MMT.

World wheat consumption was lowered a fraction, including a 1 MMT decrease here in the EU-28, and ending stocks were subsequently raised 2.5 MMT to just shy of 230 MMT. The global wheat export arena is seen getting even more competitive in 2015/16, with the EU-28's foreign sales cut 1 MMT to 32.5 MMT, some 2.9 MMT less than last season. That gives the EU-28 a 20% share of the world wheat export market this season, as opposed to 22% in 2014/15.

Increased competition this season is seen coming from Canada (up 0.5 MMT from a month ago), Argentina (up 1 MMT) and Ukraine (up 0.5 MMT). Russia's export potential was left unchanged at 23.5 MMT, although this is still 700,000 MT more than in 2014/15.

For other grains, the UDSA lowered world corn production by 1 MMT today to just under 974 MMT, but also reduced consumption by a similar amount to just over 970 MMT. That keeps ending stocks almost identical to a month ago at nearly 212 MMT. It was similar story for the state of global barley supply and demand, with production, consumption and ending stocks all only receiving minor tweaks of less than 0.5 MMT, essentially leaving the global balance sheet unchanged compared with November.

Despite a near 3 MMT, or almost 12%, drop in European rapeseed production this year, EU-28 imports are seen declining just 5% versus last year (and nearly 38% below what they were in 2013/14) as we chose to eat into out stocks from 2014/15. These are seen falling nearly 47%, despite a 1.4 MMT reduction in the size of the domestic crush this season.

In other closer to home news "French common wheat exports are lagging behind last year’s pace by 13%, according to the latest French customs data. Exports have struggled to keep up with last year’s pace so far this season, due to tougher competition in Europe," said the HGCA. Although progress has been more positive for barley "with cumulative exports exceeding last year’s level by over 40%," they add. China has been a "new" featured buyer having bought over 2 MMT of French barley in the first four months of this season versus only 708 TMT at this time last year, they note.

Even closer to home, backing up what's been discussed on here several times of late "the continuing and indeed widening price carry between old and new crop wheat, indicates that the UK should prepare for further expansion in stocks come the end of this marketing season, in June 2016," the HGCA's Jack Watts observed.

We're still less than halfway through the marketing year of course, but whichever way you look at it these could rise from around 2.4 MMT at the end of 2014/15 to close to 3.0 MMT using even the most optimistic outcome. Even that would still breach the domestic stocks peak seen in 2008/09. And note, "that to achieve this level... the export pace in Nov-Jun would have to exceed 198 TMT per month on average – something that hasn’t been seen since 2011/12 when quality was excellent, currency favourable and feed wheat demand strong," Jack observes.

A more "middle of the road" scenario for the remainder of 2015/16 would see UK wheat ending stocks at around 3.7 MMT, over 50% more than at the end of last season.