Conflicting evidence has wheat analysts uncertain
Scratching your head about wheat prospects this year? You're not alone. Crop analysts are also struggling to get a handle on matters.
THE INTERNATIONAL Grains Council (IGC) gave rise to some tentative optimism for Aussie wheat producers hoping for a boost in prices when it released its estimate report showing world wheat production would fall for the first time in six years.
The IGC came out with 2018-19 global production of 742 million tonnes, a fall of 15m tonnes year on year.
If it happens it will be the first year on year fall in production since 2012-13.
Falls in production will come from lower planting, although the IGC report is not broken down by area.
The US will be one area that could drop in terms of production if US Department of Agriculture (USDA) forecasts for the lowest plantings of wheat in 109 years are correct.
The conflicting market signals have left analysts struggling to get a grip with how the year ahead could pan out in terms of pricing.
“If we start to see production falling much past those levels then the stocks situation could start to get interesting,” Bartholomaeus Consulting principal Malcolm Bartholomaeus said.
“The buffer is not as big as people think.”
However, he said at present, in spite of the slightly bullish signals from agencies such as the IGC, the wheat market remained cagey.
Mr Bartholomaeus said a lot of the lack of momentum in wheat relates to the US, where the headlines were around the small planting.
However, he said last year there had been planting on par with this year, combined with drought, and the US had no trouble meeting wheat demand.
“Even though the plant is small, it appears the market is comfortable with it, that’s why they have studiously ignored all the signals such as increased winter kill and the pricing has stayed flat.
Mr Bartholomaeus said Russian production would be critical in setting the tone for the market.
“You’d really want to see a significant drop in Russian production, I’d say 20 million tonnes, before you got too excited.”
This is a large number, but it comes after a record Russian crop in 2017 and plantings are expected to be down.
The IGC is also predicting the lower production will finally see an eroding of the wheat stockpile, similarly the first year on year fall since 2012-13.
Market analysts suggest Africa and Asia, with a particular focus on India, are expected to be strong buyers of wheat over the coming marketing year.
Mr Bartholomaeus said there had been a decline in forecasts of planted area in places such as the European Union, Russia and the US.
He said a contraction was critical to lowering production enough to eat into the stockpile, but said the added consumption meant although the reserve seemed hefty it could alter quickly.
“If you’ve got 2 million tonnes and you use a million, it’s a good buffer, but if you have got 10 million and use 9 million, even though the end reserve number is the same the pressure on the stocks is much greater,” he said.
“It’s a very hard year to read, there’s a lot of wheat around, but equally it wouldn’t take too much of a weather event to drag that stocks to use ratio down.”