International wheat stocks continue to grow

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The International Grains Council (IGC) further increased its global wheat production forecast by 7Mt to 727Mt in its monthly report.

With increases in demand forecasts unable to keep up with production, stocks estimates were also up to 211Mt. This takes stock levels to a record, but although a good headline, this risks making the market more bearish than it really is.

“As grain demand increases over time, a higher level of stock is required to transition from one crop year to the next. A more appropriate way is to look at stocks is as a proportion of demand,” said Jack Watts, lead analyst, AHDB Market Intelligence.

“The global wheat stocks to use ratio for 2015/16 is slightly higher than the previous IGC estimate in August. But it’s marginal.

“Part of the reason is that wheat is expected acquire more feed demand.

“The price declines of 2013 and 2014 were largely driven by replenishment of global maize supplies after the issues of 2012. In 2015 though, it’s more about wheat prices falling relative to maize i.e. wheat’s premium over maize is eroding.

“This is because, relative to maize, wheat is more abundant. This will help encourage feed demand for wheat to grow at the expense of maize.

“The market will have to watch closely to see how much feed demand wheat can find, which will influence future supply and demand estimates.”

With wheat prices falling relative to maize, Watts believes that wheat is more exposed to any issues that materialise in the maize market – notably any issues with the approaching South American crop and the 2016 US growing season.

“Markets continue to incentivise the storage of grain,” he said.