CHICAGO India will be the first major wheat-growing country to harvest the 2017/18 crop, and most of its wheat will be cut by the time the U.S. Department of Agriculture rolls out its first production estimate in May.
Despite the early glimpse this should provide to the wheat market, the Indian government's data could actually downplay the potential impact of the country's bumper crop on global balance sheets due to some data discrepancies with USDA.
India, the world’s second-largest wheat grower and consumer, is due to begin harvesting the 2017/18 crop later this month. The Ministry of Agriculture (MOA) pegs the upcoming harvest at 96.64 million tonnes, which would be an all-time high for that country according to the USDA's records.
India's last two wheat crops were plagued with difficult weather, reducing the total output to near 87 million tonnes in each year, according to USDA. This was down considerably from the previous three years, in which production was closer to 95 million tonnes.
Some analysis groups predict that the 2017/18 wheat harvest could reach 100 million tonnes, which if realized would represent an increase on the year of up to 15 percent – much larger than MOA data implies.
And this means India will likely be contributing much more heavily to world wheat supply in 2017/18 relative to the year before.
MOA's terminology for a particular season differs from that used by USDA, so it can create some confusion when comparing numbers.
The MOA denotes a season by the planting and harvesting year, not by the actual marketing year into which it falls. So the MOA’s 96.64 million-tonne estimate is actually for the 2017/18 season by USDA standards, but MOA will refer to it as 2016/17.
USDA considers the wheat crop that is about to be harvested in the 2017/18 cycle, which will begin on July 1. The U.S. agency will not officially size up the Indian wheat harvest until May 10.
Additionally, the MOA and USDA hold a difference greater than 5 million tonnes for 2016/17 wheat production. This is significant because as it stands, MOA is predicting a 5 percent increase in 2017 over the 92.29 million tonnes that the agency believes farmers harvested in early 2016.
But when considering the 87 million tonnes that USDA have written in for the 2016/17 season, this year’s harvest volume could rise by more than 10 percent from last year, and possibly as much as 15 percent depending on the eventual size of the crop.
So if USDA is as optimistic about India’s current crop as other analysts, the year-on-year adjustment to the supply side of USDA’s 2017/18 global wheat balance sheet will be much heavier than the MOA figures would imply.
India is typically not a significant importer of wheat, except when it seeks to make up for deficiencies in its own harvest, which has been the case in the last two years. When India is purchasing wheat, the impact on the global wheat market is certainly noticeable.
This year, India will import the largest volume of the grain in a decade. The country has imported over 5 million tonnes since July 1, and the majority has originated in either Ukraine or Australia.
While 5 million tonnes of wheat seem to pale in comparison to the 179 million tonnes that will be exported globally this year, India’s expected haul amounts to approximately 20 percent of what the United States – a leading global wheat supplier – will ship this season.
Indian officials this month may impose a 25 percent import tax on wheat, which was lowered to 10 percent from 25 percent in September 2016 and then scrapped on Dec. 8 last year. The move would serve to curb imports and protect local farmers from a crash in local prices as the result of an influx of foreign product.
The country is likely to import 2 million or 3 million tonnes in the 2017/18 cycle despite the bumper harvest. This is according to the head of conglomerate Adani Enterprises Ltd's agribusiness division, who also said imports should stay elevated next year so India can build stocks back up to comfortable levels.
Still, a couple million tonnes would be far more than India imported in any individual season between mid-2007 and mid-2016. The country imported a total of about 3 million tonnes of wheat in this time frame.
But even though Indian imports may remain elevated through mid-2018, the country's gain in wheat supply through this year’s huge harvest will outweigh the domestic demand pressure on the global new-crop wheat balance sheet.
(Editing by Matthew Lewis)