Wheat Outlook: Despite Rise In Use, Stocks Inch Higher Due To China Increase
05/13/2010 09:40AM
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Foreign wheat beginning stocks for 2010/10 are forecast up 20.3 million tons to 167.5 million. This stocks increase more than offsets the projected 3.1-million-ton decline in foreign wheat production, and foreign supplies are significantly up year-to-year by 17.4 million tons. The most dramatic increase in beginning stocks is for China by 9.8 million tons, where the Government is continuing to accumulate wheat stocks. The Governments of India and Russia have been making intervention purchases throughout 2009/10, increasing their country’s 2010/11 beginning stocks by 2.7 million ton (20 percent) and 2.4 million tons (23 percent), respectively. In Kazakhstan, beginning stocks are up 2.0 million tons, which more than doubles the countries’ beginning stocks to 3.9 million, as logistical difficulties in transporting grain to ports impeded exports. Currently Kazakhstan does not have sufficient storage space to provide quality storage for this volume of stocks, and domestic prices are very depressed. Argentina’s beginning stocks are up 0.7 million tons from an almost depleted level of 0.4 million. As a result of a production increase for two years in a row in Australia, beginning 2010/11 stocks are projected up 1.0 million tons to 4.6 million.
Foreign wheat use in 2010/11 is projected to increase 14.9 million tons, or 2.4 percent, to 634.6 million tons. Wheat feed and residual is projected up 3.6 million, mainly reflecting a 3.0-million-ton increase in wheat feeding in Russia. The Russian government is increasing support for livestock producers through such measures as tariff-rate import quotas, where the low tariff quota volume has been decreasing 2 years in a row in a bid to improve the price competitiveness of domestic meat and poultry producers vis à vis imports (Russia being a major importer of meat and especially poultry), and by funding additional investment to the livestock sector. Foreign food, seed, and industrial use of wheat is expected to increase by 11.3 million tons, or about 2 percent, following population growth, and an increase of wheat use in ethanol production. The main examples of the increases industrial use of wheat are the EU-27, where a wheat-based ethanol plant that can process 1.1 million tons of wheat per year opened in the UK in the latter part of 2009/10, and Canada, where opening of new wheat-based ethanol plants in western Canada will increase demand for wheat use.
Increases in foreign wheat use are projected to be much smaller than the increase in wheat supplies, boosted by beginning stocks (driven mainly by the Chinese increase mentioned previously), despite slightly lower production (down 3.1 million tons, or 0.5 percent) and imports (down 0.6 million tons, or less than 0.5 percent). As a result, ending stocks are projected to increase the third year in a row. Foreign ending stocks for 2010/11 are projected to reach 171.0 million tons, up 3.4 million, or 2 percent. As with the beginning stocks, the increase is almost completely driven by Chinese ending stocks that are 8.2 million tons up on the year. Another increase is for Kazakhstan, where ending wheat stocks are projected to increase by another 1.7 million tons, further straining already overloaded storage capacities. The foreign stocks-to-use ratio for foreign stocks is nearly unchanged.