January 24, 2011

 

World to tackle wheat shortage in 2011-12

 

The world will have to cope further with a significant wheat deficit in 2011-12, accompanied by a possible "most intense battle for acres in history, according to the Commonwealth Bank of Australia (CBA).

 

World wheat production, which is expected to fall 17 million tonnes below consumption in the current season, will chalk up a second successive shortfall, reducing inventories to their lowest for four years.

 

Indeed, it will take until 2012-13 for the world to return to a, modest, surplus in wheat output, CBA said, pitching itself at the gloomier end of the round of forecasters releasing initial estimates for the coming season.

 

CBA forecast the 2011-12 deficits at 15 million tonnes, noting that prospects for winter crops in the US and China had been curtailed by drought, while the likelihood of a rise in further seeding was being curbed by the clamour for nearly all crops for extra area to rebuild production and depleted supplies.

 

"The area planted to most commodities must increase," CBA agri commodities analyst Luke Mathews, said, citing a difference between the current crop price spike and the grains rally in 2007-08, when soft commodities were in "comfortable" supply.

 

"This is where things get interesting, because all commodities are chasing increased area. The battle for acres in 2011 is set to be the most intense in history."

 

While there are limited regions in which wheat competes directly with the common soft commodities for space, the overall scramble for land meant that "despite strong prices, wheat area is unlikely to lift significantly next season", Mathews said.

 

Disappointing Russian winter grain sowings, dragged some 20-30% below target by persistent drought, and had already presented a setback to expectations of expanded wheat plantings.

 

The comments follow an upgrade, from 2%-3%, on Thursday by the International Grains Council in its estimate for the rise in world wheat area in 2011-12, citing the incentive that high prices have given farmers.

 

A rise of 3% in area would represent an extra 6 million to 7 million hectares, roughly half the size of Australia's typical wheat seeding.

 

Both the IGC and Macquarie forecast next season's global output at 670 million tonnes, a rise of some 4%, and above Mathews' 659 million-tonne target.

 

Nonetheless, Mathews was more cautious than Macquarie in price expectations saying that while wheat values could be expected to continue to rise, markets had already accounted for a further squeeze in supplies.

 

"Further gains in world wheat prices may become more difficult to achieve, because current pricing already appears to account for a tightening in global availability, plus the need for a supply response," he said.

 

And prices would "soften" as a rise in sowings for 2012-13 neared "realisation".

 

Mathews forecast wheat futures peaking in the second quarter of this year, when they would average US$8.67 a bushel in Chicago and AUD330 (US$325.96) a tonne in Sydney, for east coast milling wheat.

 

Macquarie pegged the second-quarter Chicago peak at US$9 a bushel, also equivalent to US$330 a tonne.