International Grains Council raises Russian Production
The International Grains Council (IGC) increased its global wheat crop forecast by 3 MMT to 762 MMT.
IGC has Russia's production seen at 79.5 MMT up from 77.1 MMT in their previous report.
The adjustment to 79.5 MMT is slightly below the estimates of Russian agri-consultant SovEcon: 80-83 MMT and IKAR: 80.5 MMT.
Global wheat production is now seen well above the prior season's 735 MMT, leading to a rise in stocks which were estimated at 274 MMT at the end of the 2019/20 season, up from 264 MMT a year earlier.
The IGC also increased its forecast for 2019/20 world corn production by 1 MMT to 1.125 BBT. The prior season's crop was estimated at 1.118 BBT.
Corn stocks at the end of 2019/20 were put at 275 MMT, up from 266 MMT estimated previously but still well below the 311 MMT estimated for 2018/19.
What It Means for the US Farmer: At FBN we believe that the IGC’s numbers are not considered to be “market movers," in the sense that they lack the ability to influence the direction of the futures markets.
Rather, the IGC’s figures provide a broader sense of the overall global supply picture. The upwards adjustment to the global wheat supply is logical given that many of the drought impacted regions from last year, Australia and the EU, are no longer in a drought.
Chinese Grain Stocks to Remain Accommodating through Next Year
The general theme of large grain stockpiles in China is not expected to change anytime soon, according to a recent report from the USDA, but the prognosis is more encouraging for corn than for wheat when it comes to reducing inventory.
If Chinese corn demand continues outpacing production at the same rate, corn stocks could normalize relative to the rest of the world in a few years.
According to the USDA, about 65% of the world’s corn will be in China this year, but the country imports/exports very little.
USDA projects China’s 2019-20 corn ending stocks at 182.425 MMT, down 11% YoY and the smallest in five years. This includes a 255 MMT crop, down only 1% YoY, but the stock cut is driven by the pace of consumption versus output.
In 2017, China announced it would require gasoline supplies nationwide to be blended with ethanol by 2020, which would require about 15 million tonnes of the biofuel annually. China had an ethanol production capacity of about 2.8 million tonnes in 2017, though that has recently expanded.
What It Means for the US Farmer: China’s corn supply and demand can be difficult to accurately measure but the USDA does a fine job of providing relevant information. The decline in hog numbers due to African swine fever will reduce demand which can limit the short run draw on Chinese corn stocks. The ethanol mandate is interesting because it doesn't state whether the ethanol can be corn or sugar based. The bottom line is U.S. corn exports to China are dependent on the continuing trade negotiations. In the long run, shrinking supplies and growing demand could be a positive the U.S. farmer if a trade deal gets signed.
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