Mecardo Analysis - What is the situation with Wheat importers?
- By: "Farm Tender" News
- Cattle News
- Aug 24, 2018
- 532 views
- Share
By Andrew Whitelaw | Source: USDA, Mecardo.
The world is awash with wheat, it’s just not in the right place. The focus in the market is largely on supply issues, however, demand is also an importer driver not to be forgotten. We take a look at global wheat stocks from both a supply and demand perspective.
I read an article from a major market analysis overnight, expressing concerns about wheat stocks in China. The article discussed the fact that although wheat stocks globally are at very high levels, 50% of the stocks are held within China (Figure 1). I have been discussing this as a growing issue for over a year (see here), so hardly a new piece of information to arrive in the market.
China as a nation is a large producer and have huge stockpiles in their inventory, yet it very rarely sees the light of day in the export market. The average exports from China since the turn of the decade have been 917kmt. The largest year of exports since 1960 was in 2007/08 with 2.8mmt. The high domestic price in China (Gov intervention) and historical precedence would point to China being unlikely to come to the aid of the global trade.
When we exclude Chinese stocks from the global situation (Figure 2), the world is sitting on similar levels of stocks to 2008/09 and 2012/13. These were both periods when futures prices rose dramatically and importing countries were hit especially hard with food prices rising, especially in 2008.
There was one big difference which hasn’t been discussed by the market. Import nation stocks. Agricultural markets work on a basis of supply and demand, however at times, we forget the demand side of the picture.
The major wheat importers in the world* seem to have learned some hard lessons from the past. The beginning stocks for this season are sitting at comfortable levels. The stocks at the start of this season, are the highest beginning stocks since on record, albeit by a small margin.
Effectively import nations on a whole are better positioned than in the previous years when stocks were at comparable levels in recent years.
*Algeria, Bangladesh, Brazil, Egypt, Indonesia, Japan, South Korea, Mexico, Philippines & Turkey
Key points
* World stock levels excluding China are at similar levels to 2008/09 & 2012/13
* The stocks held by major importers are at respectable levels.
* China hold 49% of the world wheat stocks
* China hold 49% of the world wheat stocks
What does this mean?
The world stocks (excl China) are at similar levels to 2008/09 & 2012/13, which were years when prices reacted strongly. As we move into next year, the pressure will be on the market as exporters deplete their stocks.
However, the import destinations are sitting on respectable stock levels at the beginning of this season. This would imply that any pain will likely start to be felt as we move into the first half of 2019.
Share Ag News Via