World wheat supply is expected to hit record levels in 2017-18 for the fourth year in a row, but remove China from the equation and next year's global wheat carryout would be the lowest in four years.
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The U.S. Department of Agriculture projected world wheat ending stocks would rise to 258.29 million tonnes in 2017-18, slightly larger than its revised 2016-17 target of 255.35 million tonnes, but well above the new-crop trade estimate of 246.15 million.
China has been notorious over the past decade for producing and storing large quantities of grain in its effort to be self-sufficient.
Wheat stockpiles have now grown to staggering levels, but government support prices for the grain ensure that farmers continue to produce at the same rate, thus worsening the problem.
The East Asian country is the world's largest wheat producer, but it barely participates in the global marketplace.
USDA expects China to import 3 million tonnes of the grain in 2017-18 and export 0.8 million — quantities that pale in comparison with the 131 million tonnes it will harvest.
China's wheat stocks-to-use ratio — which measures both supply and demand — will climb above the 100 percent mark in 2017-18 for the first time ever to 110 percent.
This means the country will have enough wheat in storage to fulfill total demand for more than one year, assuming it is all still usable.
By comparison, the US — which is currently considered to be in a wheat excess situation — has an estimated stocks-to-use of 52 percent for 2016-17, but it is expected to fall to 42 percent in 2017-18.
The world still has a lot of wheat with or without China.
But without China, world wheat supply is actually tightening instead of expanding.
At the end of 2016-17, China will be left holding 43.4 percent of the global wheat supply.
USDA predicts this percentage will shoot to 49.6 in 2017-18, which would be China's largest-ever share. Given that half of the world's wheat supply is locked up in China and inaccessible to the world market, it is safe to remove the country from the world balance sheet in order to better examine effective wheat supply.
As it stands, world wheat carryout is set to increase 3 million tonnes on the year in 2017-18, but when subtracting China's portion, carryout would actually decrease by more than 14 million tonnes and represent the smallest volume since 2013-14.
With China still in the picture, world stocks-to-use is 28.3 percent, the heaviest since 2001-02.
Removing China's details from the balance sheet yields an effective ratio of 16.4 percent, which would be the lowest in a decade.
The 2016-17 ratio sits at 18.2 percent, and the 10-year high of 22 percent was notched in 2009-10. ■