With prospects for a record 2008-09 world wheat crop looming over the market, wheat prices are likely to trend lower in the short-term, barring unforeseen production or harvesting problems, says analyst Jon Marcus, Lakefront Futures, Chicago, Ill.
Marcus says he has heard “nothing but positive news about the size of the world wheat crop,” which is expected to top out at around 656 million metric tons for 2008-09, according to USDA's latest production estimate. That's an 8 percent increase over last year and would be a world record if realized.
The largest expected increases in production among wheat-producing countries are: Canada, up 25 percent; the European Union, up 17 percent; the United States, up 16 percent; China, up 3 percent; the Black Sea region, up 7 percent; and India, up 1 percent.
In addition, Australia's wheat production is forecast 83 percent higher than last year's drought-ravaged crop, although several months remain before harvest.
Production is expected lower in Argentina, because of reduced plantings due to political problems.
Marcus noted that $7.70 prices (as of mid-May) “seemed a little high,” given forecasts for higher world production.
When asked about the widening basis for the soft red winter wheat produced in the Mid-South, Marcus noted, “I think the wide basis is the residual from the fear of ‘what if.’ The last 18 months have really put some concern in people's minds about how to look at this cash versus futures issue.
“Having a wide basis is a sort of protection for both sides in case the market does decide to get irrational again.”
World wheat consumption is forecast at a record 642 million metric tons, up 4 percent over the previous year.
According to U.S. Wheat Associates, high corn prices may shift wheat to feed use in the United States and Europe.
Wheat currently is used as biofuel feedstock in Europe and Canada.
Wheat trade is expected to increase 7 percent to a new record of 118 million metric tons.
Imports are projected higher than last year for Iran, Syria and Israel. Imports for India are expected to fall near zero after imports totaled 8 million metric tons over the last two years. EU-27 purchases are expected to decline due to higher production.
Current world wheat stocks are estimated at a 30-year low and exportable supplies are estimated at 38 percent below the 10-year average. But prospects for increased global production in 2008-09 are expected to increase export competition.
Export forecasts are higher for Australia, the EU, Ukraine and Canada. Exports are forecast lower for Kazakhstan, Pakistan and the United States, which is forecast to decline 24 percent.
U.S. exports were expected to remain strong during summer months before supplies from competing exporters become available. The top 10 customers for U.S. wheat are Japan, Egypt, Mexico, Nigeria, Iraq, EU-27, Philippines, South Korea, Taiwan and Indonesia.
According to USWA, export restrictions remain in place in several countries, including Argentina, and ocean freight rates are at record highs.
If production meets the USDA forecast, global ending stocks are expected to rebound 13 percent in 2008-09, after falling to the lowest level since 1978. Even so, the stocks-to-use ratio for 2008-09 would be the second lowest in history. U.S. ending stocks are projected to nearly double going from 7 million metric tons to nearly 14 million metric tons.