Ever increasing food consumption across the globe, combined with smaller crops in some regions, is leading to agricultural commodity markets tightening.
Consumption is outpacing production for many of the world’s major agricultural commodities, bringing good news for growers and export countries if they have the exportable surplus to meet demand.
Forecasts for 2018/19 from the United States Department of Agriculture (USDA) have consumption exceeding production for the second year running – a situation reversal from the large production increases of 2013 to 2016.
Population growth, economic expansion and changing diets in developing nations are driving the consumption increase, while production has stabilised or fallen.
As a result, global stocks are also being drawn down, with some commodities dipping below the 20 per cent stocks-to-use ratio favoured by world markets (providing 10 weeks’ supply).
Unfortunately for Australia, our below-average crop estimates for 2018/19 and record domestic demand will limit our ability to take full advantage of this global shortfall, but higher prices may be available to the fortunate growers who do have production available.
Wheat
World wheat production is forecast to fall back to more average levels in 2018/19 following consecutive records over the past three years. Many of the major producers, including Europe, Russia and Australia, have scaled back their estimates due to recent poor weather conditions affecting their crops.
Russia in particular will drop about 17mmt from last year’s record and is looking towards a production of 68mmt. This bodes well for other exporting nations to take back some market share, given Russia will have less to sell once carryover stocks clear. This won’t help Australia, as we head towards a well below average wheat crop with reduced export availability.
Meanwhile, global wheat consumption keeps climbing to 743mmt, exceeding the production forecast of 729mmt. This imbalance will see wheat stocks reduce for the first time in six years to 259mmt and a stocks-to-use ratio of 34 per cent. While this ordinarily wouldn’t be alarming, more than half of these stocks are in China, which means the rest of the world’s stocks-to-use ratio is below that magic 20 per cent mark.
Feed
The global feed market is also tighter despite this year’s corn production headed for its second highest level ever with 1.061 billion tonnes.
Even with a near-record crop, there won’t be enough to keep up with demand as corn consumption is set to exceed production for the second year in a row.
A new consumption peak of 1.099 billion tonnes is forecast for 2018/19 – a shortfall of 38mmt – meaning corn stocks will be drawn further and alternative feeds in demand. With this supply and demand disparity for corn over two years, world stocks are expected to reduce to 155mmt this season – a 75mmt drop from their peak in 2016/17. Corn’s stock-to-use ratio is now under 15 per cent for the first time in seven years, which will keep the market focused on any changes.
This is good news for major corn exporters Argentina, Brazil, United States and Ukraine, who are also forecast to have large crops so will have plenty of surplus to sell to the world.
It is good news for Australian feed barley, though our reduced volumes will make it hard to satisfy all demand. The USDA is forecasting an average 8.8mmt barley crop for Australia, with 6.5mmt of this exported, however these figures are likely to reduce given the weather outlook.
Globally, barley production and consumption are well-balanced at 144mmt and 145mmt respectively. However barley stocks have been reducing steadily and will be at their lowest level in a decade in 2018/19, creating a very tight stocks-to-use ratio of 12 per cent.
Oilseeds
A record in world soybean production is forecast for 2018/19, driven mainly by large crops in Argentina, Brazil and the United States – who are also the major exporters. With production forecast to be 367mmt and consumption at 354mmt, stocks will also reach their record levels at 105mmt – leaving a heavy balance sheet.
Canola tells a more balanced story with world production estimated at 72mmt and consumption at 73mmt. Although there are much lower canola stocks in reserve, many importers will use substitute oils to fill this shortfall if needed.
With Australia’s canola crop under pressure, particularly in the eastern states, it will be left mainly to Western Australia to fulfil the export demand. The key markets will again be Europe – whose production is down slightly this year – and China whose import needs are rising. China’s imports will reach their highest level ever of 5.3mmt this year, but should continue to focus on Canada to fulfil most of this demand.