Rabobank: Historically High Stock Levels in Australia

20.06.2017

As planting of the Australian wheat crop wraps up, any prospect of a significant recovery in global wheat prices in the 2017/18 season remains dampened by the high stocks-to-use (S/U) ratio, according to agribusiness banking specialist Rabobank.

In light of this, Rabobank is forecasting CBOT wheat prices to increase only marginally over the coming 12 months – in the vicinity of 10 to 15% – to reach US490c/bushel by mid-2018.

In its recently-released industry report “Australian wheat outlook 2017/18 – the high-stocks game continues”, Rabobank says with Australian wheat stocks also at historically high levels, the greatest prospect for local prices is the likely depreciation of the Australian dollar, which should push prices into firmer territory over the next 12 months.

The report’s author, Rabobank senior grains analyst Cheryl Kalisch Gordon, says the “world is awash with wheat” with the global S/U ratio (defined as the level of carryover stocks as a percentage of total use) now at 33%, well above its historical average of 29%.  

“To see the global grains market return to an S/U ratio of 29% – which is considered the point that delivers more attractive prices – we would need to see global production fall by 29 million tones this season,” she says.

“While the US have cut their wheat planted acreage to its lowest level in 100 years, it would take a significant production failure in one or more major supply regions to see the market start to recover strongly.”

Dr Kalisch Gordon says while wheat acreage around the world is fairly static, up just 1% in the past five years, it is the yield advancements in Russia and the Ukraine, and also parts of the EU that is driving the increase in global wheat production. World wheat yields are now estimated to be around 8% higher than they were five years ago.

With global wheat production increasing by around 3% each year (in the five year period to 2015/16), it has “well-and-truly outstripped growth in demand, with consumption only growing by an average annual rate of just under 2% during the same period”, she says.

The report says with “much of the stock accumulation occurring in China”, Chinese wheat stocks need to be “at least partially taken out of the equation” when looking at global market price dynamics.

“Stocks in China account for around 45% of global wheat stocks, with China holding an estimated 100 million tonnes in storage at the start of 2016/17,” Dr Kalisch Gordon says.

Dr Kalisch Gordon says even if China was to be removed from the equation, the global S/U is still 25% higher than its 10-year average, indicating just how high stock levels are around the world.

The report says Australia is heading into the 2017/18 season with high wheat stocks, estimated at close to 8 million tonnes, the highest level for almost 20 years.  


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