In the following graphics the relationship between the World wheat stocks-to-use adjusted for China and U.S. wheat prices adjusted for the U.S. dollar is portrayed.
Specifically, this graphic shows “World Less China” Wheat Ending Stocks-to-Use plotted against U.S. Wheat Prices (adjusted for the U.S. dollar traded weighted index) on a scatter diagram for the last 44 years (i.e., 1973/74 through projected 2016/17 marketing years).
The key findings from this graphic are that…
Issue #1) If you isolate Chinese supply-demand from aggregate World wheat market overall supply-demand, “World Less China” ending stocks-to-use (22.75%) for “current crop” MY 2016/17 are much less plentiful than aggregate “World” ending stocks-to-use (34.5%).
Issue #2) When looking at the World wheat market from a “World Less China” stocks-to-use and USD Dollar adjusted U.S. wheat price perspective, the move from “old crop” MY 2015/16 (24.3% S/U & 4.28 /bu) to “new crop” MY 2016/17 (22.75% S/U & $3.39/bu) is “uneconomic” in nature. From “old crop” MY 2015/16 to “current crop” MY 2016/17 the World wheat market has declined in both % ending stocks-to-use and currency adjusted U.S. wheat prices. Of course, there are no doubt other factors in play, but this is an odd market shift if it represents the true market supply/demand and price situation.
The big questions to consider in the World wheat market are whether it is more accurate to consider World wheat supply-demand with or without China numbers included? There is a strong argument to be made that because of China’s domestic grain stocks / food security policies and that fact that it is not an exporter of wheat in World markets, that a more accurate portrayal of World wheat supply-demand can be made by excluding China’s supply-demand numbers from World calculations when considering freely accessible wheat supply-demand factors.
Adding in wheat quality concerns in World markets brings a person to start considering that freely accessible World wheat supply/demand balances are tighter than what is commonly presumed by the broader World wheat market (that is focused on the broad aggregate World wheat supply-demand numbers).
Some other supporting graphics to consider U.S. World Wheat Stocks-to-Use and U.S. Wheat Prices (not adjusted for the U.S. dollar index value over time….