According to those who keep track of such numbers (in particular the US Department of Agriculture and the International Grains Council) the world has plenty of grain in store. At 640 million tonnes of year-end wheat and feed grains, that is nearly as much as the world has ever had. That sounds rather bearish for prices. However, there are two points worthy of note.
The first point to consider is where those stores are being held. In essence it matters not whether grain is in exporter’s barns or importers silos; it is all available to supply consumers. But if something is thought likely to remain in store for a considerable time, then its impact becomes significant only at the time of its sale, not whilst it is squirreled away in a barn. There are more consumers in China than in any other country in the world. China therefore gets through more grains than any other country; in fact, consuming about half as much grain again than the Americans, the second most hungry nation. China also produces more grain than any other country, this time by a margin of about 20% over its nearest rival, again the USA. China has not historically been a large player in the global market apart from topping up their wheat reserves from time to time. However, it has, in recent years, started importing various grains, including barley and maize as well as more tropical crops like sorghum. And, as it happens, over half of that 640 million tonnes of grain carry-over stock is held in this one country. That is equivalent to nearly 10 months supply. One would assume it will be used one day, as long as it is being properly stored, but it also means that whilst it is locked up like that, the rest of the world has to operate as if it wasn’t there. Clearly if it is sold and Chinese stocks fall one day, as has happened in the past, it could lead to low grain prices for some time, but in the meantime, stocks, excluding those in China are relatively tight at 300 million tonnes.
The chart demonstrates the grain stocks held in China compared with the rest of the world, and the amount eaten in China compared with the rest of the world. it demonstrates they are holding quite a bit.
The second point is, we are consuming more grain than we have ever done so as well. So as a proportion of consumption, 300 million tonnes is not that much. Of wheat, the closing stocks is about 23% of consumption, almost a quarter of a year, but of feed grains, its 13%, about 6 weeks. This is about equivalent to ‘pipeline stock’ requirements in the UK and many other countries as the end of the season is June and harvest begins in August. All of a sudden, its starting to sound a little more bullish.
