The strength of domestic demand for wheat, the forecast of a rise in the area sown and the good pace of shipments to date allow projecting a consumption of wheat 2016/17 of 17.6 Mt. Even under the most optimistic private production estimates, a further cut in final inventories becomes unavoidable.
Last week the Ministry of Agroindustry reported an industrial usage of wheat of 493,663 tons for June 2017, meaning that wheat milling in the first half of the year totaled 2.84 million tons, 6% higher than the year before. Wheat industrialization by feeders added to industrial usage another 123,292 tons so far this year, almost 80% more than in the first semester of the previous year.
If, presumably, industrial consumption by millers end up at 5.9 million tons for the current marketing year and we can estimate a seed use forecast of 0.7 million (considering a planting density of 125 kg per hectare and an area to cover in the new cycle of 5.5 million hectares), we would be thinking of a domestic absorption of the grain of 6.6 million tons.
As a forecast of the external demand, we can postulate that this year Argentina will ship about 11 million tons. Between December 2016 and June 2017 a little more than 9 million tons were exported, and seasonal analysis show that during these first seven months of the commercial campaign around 80% of the total exports of the campaign are already shipped. Together with the active participation exporters still have in the domestic cash market, this projection seems plausible.
In this context, a total demand of 17.6 million tons of wheat for the 2016/17 season will leave a much adjusted grain stock ahead of the next commercial cycle. With a production estimated at the range of 16.6 to 17.5 million tons, an adjustment of inventories and a fall in the stock to consumption ratio will be inevitable, supporting prices for the new season.