From Seeking Alpha: Global Wheat Stocks At Highs Not Seen In 12 Years
The USDA published its World Agricultural Supply and Demand Estimates Report and as expected, export demand issues caused estimates of ending stocks to rise to their highest levels since the 2000/01 growing season. Falling demand for US exports is due to increased global supplies and more competitive pricing caused by the debt crises in Europe, which has caused the dollar to strengthen against the Euro.
Global Supplies
Estimate of global wheat supplies are 9.3 million tons higher in large part due to increases in production around the globe. Upward revisions to beginning stocks in Australia and Argentina also contributed to higher supplies.
These production increases lead in to increase in global ending stocks of 5.9 million tons to 208.5. Ending stocks have not been near these highs since the 2000/01 season when ending stocks were 207.7 million tons. I should also note that during the 2000/01 season the average EUR/USD exchange rate was 0.95 and according to historical USDA data, the U.S. farm price for wheat averaged about $2.62 per bushel. I do expect the Euro to weaken further against the dollar. However, I don’t see the Euro trading at parity with the dollar at least for the foreseeable future.
Imports and Exports
Estimates of global wheat imports for the 2011/12 season are higher due to more demand for imports in Southeast Asian Countries and Mexico. Mexico says that tight domestic corn supplies are boosting demand for imported feed quality wheat. Australia and Argentina have raised exports 2.5 million and 1.0 million tons respectively due to competitive pricing with Black Sea and North American wheat supplies. A reduction in exports of 1.o million tons for the Ukraine and 1.4 million tons for the U.S. seem to corroborate the price competitiveness cited.
Consumption
Higher expected foreign wheat feeding, presumably due to tight corn supplies, has raised global consumption estimates by 3.4 million tons. However, this is not enough to overcome the 9.3 million ton increase in global supplies.
So what does that mean for Canada Bread? Or Franchisees?
If wheat stocks are high, then if/when Canada Bread raises prices, or tries to revenue share, the reason of “higher commodity costs” cannot be used again.
