By Karen Braun

NAPERVILLE, Ill. (Reuters) – Despite global wheat prices trading at record highs for the time of year, market participants may have been too optimistic on the supply outlook for the upcoming year if the U.S. government’s new projections are any indication.

The U.S. Department of Agriculture (USDA) on Thursday noted that the world’s wheat stocks ending in 2022-23 were 267 million tonnes. That is six years lower than analyst expectations of 272 millions.

But relative to estimated global demand, wheat supplies for the upcoming cycle are seen dangerously close to all-time lows and notably below this year’s reduced levels.

The world’s wheat stocks-to use for 2022-22-23 drops to 14.9%, from 16.4% in this year. This would make it the fourth-lowest ever. In 2007-08, the record was 14.3%. The average for mid-last decade was 19.%.

These could lead to wheat prices rising into 2023. This will have an impact on food prices globally as well as ensuring that importer countries continue paying high prices. There are also risks for 2022-23 supplies of wheat.

On Thursday, the most-active Chicago wheat futures reached a 2-month high at $11.83 per bushel. Futures in mid-May had traded in the lower $8-range in 2008 and 2011, the month’s highest prior to 2022.

Paris-traded Euronext wheat saw contract highs hit on Thursday. September reached 416.25 Euros per tonne.

USDA’s Thursday estimates are its first for the 2022/23 cycle.

Graphic- World wheat stocks-to-use minus China: https://fingfx.thomsonreuters.com/gfx/ce/znvnemyeopl/wht_world_stks_use_minus_cn_12May22.png

NARROW OUTLOOK

One of the most surprising forecasts on Thursday was U.S. hard red winter wheat production from USDA’s statistics service at 590 million bushels. Analysts were expecting 685 million, already far off last year’s 749 million. It would be the United States’ smallest HRW harvest since 1963.

Condition ratings in U.S. HRW states are terrible, among the worst ever, though history indicates that USDA’s prediction could be reasonable. In the last decade, USDA’s May HRW forecast was substantially closer on average to the final in poor-yielding years than in strong ones.

But the U.S. spring wheat crop is of major concern and could limit the country’s output. The planting rate was at its slowest pace since 2011, and North Dakota, which is the top producer of spring wheat, had sow only 8% of the crop, compared to 37% on average. This week’s rains may have caused delays.

Ukraine’s current situation is also causing uncertainty in the global wheat market. The Russian military holds parts of Ukraine, which was once a major exporter. The USDA estimated that Ukraine’s 2022/23 wheat harvest was 21.5million tonnes. This is a 10 year low, and 35% lower than the previous year.

Ukraine’s wheat exports fell to 10 million tonnes in 2015, a drop of 47% and nine years respectively.

Russia, the world’s top exporter of wheat, is expected to see its crop rise by over 6% this year. But USDA projects smaller 2022-23 crops from major suppliers Argentina and Australia. This collectively amounts to 4%. There could be a shortage of wheat due to unfavorable conditions in France and India.

Canada is expecting a 50% increase in its wheat harvest after the drought-stricken disaster last year. Analysts are still monitoring conditions and the pace of planting. USDA reports that the U.S. crops are expected to rise by 5% this year. But, USDA is relying on tentative spring wheat assumptions.

China is expected to store a record 53% amount of world wheat by the middle 2023, a country that is frequently overlooked in global grain analysis due to its stockpiling habits.

Karen Braun is a market researcher for Reuters. The views expressed are those of Karen Braun.