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Why the Wheat Inventory Is Still a Challenge

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Wheat’s stock-to-use ratio

So far in this series, we discussed how the global stock-to-use ratios for corn and soybeans impacted their respective prices. In this part, we’ll analyze how wheat’s stock-to-use ratio compares to other years.

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November levels

Wheat’s global stock-to-use ratio moved sideways in November. On November 9, the U.S. Department of Agriculture reported that the global wheat stock-to-use ratio was 34.04%—flat compared to October. However, the YoY (year-over-year) global wheat stock-to-use ratio rose from 31.8% in November 2015.

Wheat’s current global stock-to-use ratio has been significantly higher for each month from April through October 2016—compared to the respective months over the past four years. The above chart shows this trend.

November inventory

In November, the global wheat inventory rose by 38 basis points to 249 million metric tons—compared to 248 million metric tons in October 2016. The global wheat inventory is 10% higher YoY—compared to 227 million metric tons in November 2015.

The higher inventory is primarily a result of an increase on the supply side—it’s aided by the use of fertilizers and technological efficiency. Fertilizers played a key role in increasing crop yields over the years. Therefore, companies such as Mosaic (MOS), Agrium (AGU), CVR Partners (UAN), and Israel Chemicals (ICL) play a critical role in the agricultural sector (SPY).

The global wheat inventory has been rising over the past five years. According to the U.S. Department of Agriculture, the global wheat inventory was at its lowest point in 2013 at 181 million metric tons. Naturally, wheat’s stock-to-use ratio was also the lowest in 2013.

In the final part of this series, we’ll see how wheat prices moved over the past five years.

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