Global Wheat Supply and Demand Estimates Stabilize in January

The USDA published its World Agricultural Supply and Demand Estimates Report and the report on wheat was surprisingly neutral given the domestic wheat quality concerns which arose between now and the previous month's report.

The projected U.S. wheat ending stocks for the 2010/11 season remain unchanged from the previous month. The previous month's projection of U.S. exports of 1.3 billion bushels remains unchanged although the classes of wheat being exported have changed. Exports of Hard Red Winter (HRW) and White wheat are each expected to rise by 10 million bushels. Offsetting that increase is a decline in exports of 20 million bushels of Hard Red Spring (HRS).

Global Supplies

Global wheat supply estimates are lower than the previous month due to revisions in stock and production estimates. Kazakhstan had a slight increase in its estimate of beginning stocks of .15 million tons while estimates of production in the Ukraine are lower than the previous month by 0.35 million tons.

Imports and Exports

World estimates of wheat imports and exports for 2010/11 are slightly lower than the previous month and reflect the pace of sales and shipments reported to date.

IMPORTS
Country/Region	Change in Est. Imports
Pakistan	-0.1 Million Metric Tons
Syria	-0.1 Million Metric Tons
Iraq	-0.1 Million Metric Tons

EXPORTS
Country		Change in Est. Exports
Canada		+0.50 Million metric tons
Pakistan		+0.20 Million metric tons
Europe		-0.50 Million metric tons
Ukraine		-0.50 Million metric tons

Consumption

Global wheat consumption estimates for 2010/11 are also projected slightly lower than the previous month.

Feed / Industrial Use
Country		Change in consumption		Additional Information
Argentina		+0.45 Million metric tons		100% of increase is in industrial use
Canada		-0.55 Million metric tons		.40 million metric ton decline in wheat feed use
Middle East		-0.20 Million metric tons		100% of decline is in wheat feed use

Ending stock estimates are projected higher by .10 million metric tons with projected increases in Europe, the Ukraine, Kazakhstan and Canada being offset by declines in Pakistan and Argentina.

Global Ending Stocks
Country		Change in Est. Exports
Ukraine		+0.15 Million metric tons
Kazakhstan		+0.15 Million metric tons
Europe		+0.50 Million metric tons
Canada		+0.05 Million metric tons
Argentina		-0.45 Million metric tons
Pakistan		-0.30 Million metric tons

The world wheat stocks-to-use ratio, which is the ratio of the projected ending stocks and projected total use or demand in a season, at 26.78% is lower than last year's ending ratio of 30.29% but higher than the 2008 all-time low of 20.21%.

Click to enlarge

Source: World Agricultural Outlook Board/The Mays Report

Note that the current global stocks-to-use ratio is at or above four of the five historical lows since 1974. The domestic wheat crop condition is the missing piece of the puzzle. Crop conditions were deteriorating in the previous month's domestic wheat outlook. If the crop condition continues to deteriorate, potentially lowering the harvest yield and crop quality, prices could move even higher. However, improving domestic wheat crop conditions combined with a stabilizing global supply and demand picture may signal a price top in wheat.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I have a February bear credit spread in MOS, whose movement is correlated with wheat prices.

(Source: http://seekingalpha.com/article/251890-global-wheat-supply-and-demand-estimates-stabilize-in-january)