Canada Markets

Today's USDA report released supply and demand estimates both for the United States and around the world for the grains and oilseeds, with yet another round of bearish data to weigh on the wheat market released.

Last year marked the first year that global wheat production exceeded 700 million metric tonnes, with global production reaching a record 714.07 mmt was produced. The first look at 2014/15 global projections by the USDA in May suggested that production would slip by more than 2% to 697 mmt, a level of production which was evenly matched with forecasts for global demand. A reduction in Canada's output after the record crop produced in 2013 was listed as one factor which was behind the call for a lower forecast.

Just three months later, the USDA is calling for yet another record crop of 716.09 mmt, 10.9 mmt above the 705.17 mmt global production estimate released in July while a .3% increase over the record crop produced in 2013. Expectations for global demand have also been increased by roughly 740,000 mt from last year's record production, although this fails to prevent an increase in global ending stocks for the second straight year, as seen on the attached chart.

Where is all of the wheat coming from? USDA data shows Canada's all wheat production falling 9.5 mmt from last year's record crop to 28 mmt, while the European Union is expected to reach a record 147.87 mmt, 4.74 mmt above last year, Russia is suggested to be producing 59 mmt, up 6.9 mmt and China is set to harvest 126 mmt, for a gain of 4 mmt over last year.

The wheat trade is also set to become more competitive, as global trade volume is forecast to fall by 13.5 mmt to 151.8 mmt. Factors to watch include the potential for European quality problems as well as affected trade patterns linked to Russia's boycott of agri-food products from the western nations that have sanctions against them. Today, the Al-Tahrir News Network online reported Russia has agreed to increased volumes of ag imports from Egypt, which are needed to replace boycott production from Canada, the E.U., the U.S. and Australia, in exchange for increased wheat shipments to the world's largest wheat buyer. Russia has agreed to supply 5 to 5.5 mmt of wheat, roughly a 53% increase from last crop year.

As seen on the attached chart, global ending stocks are estimated to grow to a three-year high of 192.96 mmt, while the stocks/use ratio is calculated at 27.3% based on today's data, which is above the average of the past 10 years of 26.1%. Once again, it appears the world will remain well covered.

Today's wheat markets closed lower given the bearishness of the report. September HRS finished 7 1/4 cents lower, September SRW finished 8 1/2 cents lower, while September HRW closed 10 1/2 cents lower, with non-commercial selling weighing on prices. Futures spreads do not indicate a bearish response from the commercial side of the business, which bears watching over time.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

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