Wheat prices fall 2-4.6%, despite lower global production and inventory forecasts in USDA report

Data from the USDA's July balance sheet for wheat differed significantly from analysts' previous estimates, especially for the US crop. Therefore, despite the "bullish" nature of the report, stock market quotations decreased yesterday.

Thus, USDA experts, against the background of an increase in the area of sowing and yield, increased the forecast of wheat production in the USA in 2023/24 MR by 2 million tons to 47.3 million tons, which will exceed the figure of 2022 by 5.4%, although analysts estimated it at 45 .8 million tons, which would correspond to the level of 2021 and 2022. Compared to last year, it is expected that the sowing area, yield and, as a result, the production of winter wheat will increase, and that of spring and durum wheat will decrease.

In comparison with the June report, the new wheat balance for 2023/24 MR underwent the following changes:

• The estimate of initial reserves was increased by 2.65 to 269.31 million tons (272.6 million tons in FY 2022/23) after adjusting the balance sheet for FY 2022/23.
• The global production forecast was reduced by 3.5 to 796.7 million tons (790.2 million tons in 2022/23 FY, 781.3 million tons in 2021/22 FY and 775.72 million tons in 2020/21 FY), in particular for the EU - by 2.5 to 138 (134.4) million tons due to the drought, for Argentina - by 2 to 17.5 (12.55) million tons due to the reduction of sowing areas, for Canada - by 2 to 35 (33, 82) million tons, while for the USA the estimate was increased by 2 to 47.33 (44.9) million tons. For Ukraine, China and the Russian Federation, the forecasts were left unchanged.
• The estimate of world consumption was increased by 3.31 to a record 799.45 million tons (793.49 million tons in 2022/23 MR and 782.22 million tons in 2021/22 MR), primarily for China, where as a result of downpours during winter harvest of wheat, the use of grain for feed will increase.
• The global export forecast was reduced by 0.98 to 211.62 million tons (217.7 million tons in 2022/23 MR and 202.98 million tons in 2021/22 MR), in particular for Argentina – by 1.5 to 12 (5 ) million tons, Canada - by 1 to 26.5 (25.5) million tons, which will be partially offset by an increase in exports from Australia by 0.5 to 21.5 (32.5) million tons, and the Russian Federation - by 1 to 47 .5 (45.5) million tons.
• The global import forecast was reduced by 1.58 to 207.96 (210.47 and 199.37) million tons due to increased production by North African countries.
• The estimate of world final stocks was immediately reduced by 4.18 to 266.53 million tons (269.31 million tons in 2022/23 MR), in particular for the main exporting countries - to 35.9 (41) million tons, for China - to 2.55 to 137.13 (139) million tons, although analysts estimated reserves at 269.49 million tons.

According to the data of the report, the September futures for wheat fell in price:

• by 4.6% to $232.5/t - for soft winter SRW-wheat in Chicago (+0.3% compared to the data after the release of the June report),
• by 1.8% to $295.1/t - for hard winter HRW wheat in Kansas City (+0.7%).
• by 1.2% to $313.6/t - for hard spring HRS-wheat in Minneapolis (+5.1%).
• by 0.5% to $235.25/t – for Black Sea wheat in Chicago (-6.2%).
• by 2% to €227.75/t or $254/t - for wheat on the Paris Euronext (-3%).

Downgrades in production and inventory forecasts for major exporting countries, amid increased consumption forecasts in the near term, could lead to a significant jump in wheat prices if some importers decide to replenish their stocks while exporters do not have enough supply.