Grain bins may be bulging with wheat on Canadian farms but global stocks of the commodity are nearing a 15-year low, according to the United States Department of Agriculture.
When expressed as a percentage of anticipated consumption, 2004-05 world wheat stocks will end the year at the second lowest point in three decades, according to the USDA.
The stocks-to-use ratio is expected to be at 24 percent. Last year was the only time it has dipped lower.
In the past there has been a direct correlation between low global stocks-to-use ratios and spikes in the price of wheat.
Read Also
Russian pulse trouble reports denied
Russia’s pulse crop will be larger than last year, which won’t help prices rally from their doldrums.
But this time around growers are looking at prices that are below the 10-year average of the Canadian Wheat Board’s Pool Return Outlook.
So what is happening?
Why aren’t prices responding to the faltering stocks?
The answer lies halfway around the world.
“If you take China out of the equation, it paints a completely different picture,” said Levin Flake, wheat analyst with the USDA’s Foreign Agricultural Service.
In the last five years China’s wheat stocks have fallen 64.6 million tonnes, accounting for the entire 63.6 million tonne decline in global stocks over the same time period.
The country appears to have changed its policy on hoarding wheat and other grains, shrinking reserves to what analysts consider more reasonable levels.
China has always been secretive about its stocks but according to the latest USDA estimate they will fall to 38.3 million tonnes by the end of this crop year from a high of 102.9 million tonnes in 1999-2000.
“That was a strategic reserve that China was holding,” said Canadian Wheat Board market analyst Peter Watts.
During China’s drawdown of stocks it was essentially out of the market, but in the past 14 months it bought about 10 million tonnes of wheat, indicating it has reached the limit of its comfort zone.
Taking China out of the mix, there has been little change in global reserves. So it is a different set of circumstances than in the 1980-81, 1988-89 and 1995-96 crop years when slumping stocks sparked a price rally for wheat.
“A lot of those drops in stocks were amongst the major exporters, which is significant. That’s where you have the real relationship between world values and stocks,” said Watts.
This marketing year, the top five exporters, which account for 78 percent of the world trade in wheat, have ample supplies of the commodity.
The United States, the European Union, Canada, Australia and Argentina will end the crop year with 47.58 million tonnes stashed away, close to a 10-year high.
“There are good supplies in almost all of the major exporters,” said Flake.
Canadian farmers were sitting on 16.1 million tonnes as of Dec. 31, 2004, up 22 percent from the same time last year and well above the 10-year average of 11.3 million tonnes.
By the time the crop year is over the USDA expects Canada will have 7.4 million tonnes of wheat on the farm and at commercial position, which is about average.
Bringing stocks down to that level will be a challenge considering the competition in the market.
Farmers in the EU harvested a record crop, Argentina came close to breaking its previous high and the other big players had strong results, contributing to a record world wheat harvest of 620.9 million tonnes.
That brought an abrupt end to two years of rising wheat prices.
