Report confirms tighter supply

What we saw was a 1.95 million tonne lift in estimated global ending wheat stocks, which was seen as confirmation that global supplies are not under pressure.

However, hidden behind higher stocks was a reduction in global production estimates, and a smaller reduction in consumption. So is the world really looking at increased supplies?

The anomaly comes from an upward revision in opening stocks - i.e. the world had more wheat than it thought it had coming into this year. Opening stocks were increased by 3.8mt, with the bulk of that coming from a 3.5mt multi-year revision to EU consumption and stock data.

I don't think the market is that easily fooled. The market always sets a price level where supply (i.e. a price for those willing to sell) equates to demand (i.e. a price where people are willing to buy). The actual data behind this process is of interest, but it would be unusual for the market mechanisms not to have worked reasonably well over a period of time.

In other words, inaccurate statistical data is unlikely to have caused market failure over a sustained period. If imperfect information on stocks is going to cause an issue, it is more likely to be in the short term (as we see in Australia), rather than causing a mis-pricing over multiple seasons.

So, from behind the smoke, the August USDA Report has confirmed an ongoing tightening of global supply for this season compared to where we were last month and earlier.

Compared to July, global wheat production was lowered by 3.7mt, with a 4mt reduction for the EU, and 1mt coming off both the Kazakhstan and Turkish crops. Balancing that was a 1.5mt increase for Russia and a 1.1mt lift for Brazil.

All of these moves are consistent with the market commentary over the past few weeks. US exports have been lifted to help fill the gap left by a smaller EU crop in particular, and Russian and Ukrainian exports have lifted as well.

In the wake of the report, futures hit a new low for the August price decline, before prices lifted for the next two trading sessions. The low matched the July low, and both, so far, are above the June low. All going well, the tighter global supply that seems to be there, will see us past the low point in this year's price cycle.