Maintaining historical export levels helps to stabilize global markets. The depletion of ending stocks, however, may just be delaying a supply shock down the road if there is a weather-related crop failure in another major production/exporting region.
Yields in Russia are said to have been affected by the same weather patterns, but all analysts, including the USDA, estimate that total output was not impacted materially and that output will be the same as last year’s 56 million tonnes.
In the Southern Hemisphere, key exporter Argentina is reducing its wheat area by 17.5% over 2011-12. Farmers have been shifting to crops that are not vulnerable to export restrictions. To boot, estimates for the already smaller crop have been reduced due to poor planting weather.
A similar situation is developing in Australia as the planting season gets underway. Based on smaller wheat area, the crop was estimated at 26 million tonnes, down from 29.5 million tonnes in 2011-12. Dry weather now threatens yields, and early estimates have now fallen to 25 million tonnes.
The USDA’s first comprehensive look at the 2012-13 crop year accounted for most of the supply issues cited above. Global ending stocks are estimated at 188 million tonnes, or 27.4% of consumption, down from 28.4% in 2011-12 and 30% in 2010-11. That’s still a fairly well-supplied market when compared with global inventory levels that sank as low as 20% of usage in 2007-08 and that sparked the bull market.
There are supply problems or potential thereof in almost all major producing countries. We were stopped out of our long position in December wheat at $6.40 per bushel, as per our April 30 recommendation. That was the low. We still believe that this market has major upside potential. Buy December wheat and use the same stop. Alternatively, roll our highly profitable spread of long July wheat/short July corn to September.