Chinese Wheat Stocks Mask Tight Stocks to Use Ratio
By Stephanie Bryant-Erdmann, USW Market Analyst
On May 10, USDA forecast the 2018/19 global wheat supply to hit a record 1,018 million metric tons (MMT) despite the expectation that global wheat production will fall for the first time in 5 years to 748 MMT.
At the same time that global wheat production is expected to decrease, global wheat consumption is expected to reach a new record of 754 MMT, 5 percent above the 5-year average.
The reason global wheat supplies continue to grow is because of an anticipated 6 percent year over year increase in beginning stocks — 47 percent of which are in China. This large percentage of global wheat stocks residing in China’s wheat stocks are masking an otherwise declining global wheat supply.
By the end of 2018/19, USDA expects Chinese ending stocks to total 139 MMT, 52 percent of global wheat ending stocks.
Because China’s endings stocks are masking the declining global wheat supply, the traditional stocks-to-use ratio is 35 percent.
However, when Chinese stocks and use are removed from the ratio, the 2018/19 global stocks-to-use ratio falls sharply to 20 percent, the tightest stocks-to-use ratio since 2007/08.
Buyers should continue to monitor conditions around the world and recognize that global wheat supplies are much tighter than traditional global supply and demand estimates show.
