February 5, 2010

Australia can expect modest gain in wheat prices

Australian grain producers can expect wheat prices to climb modestly to between US$186 and US$222 a tonne this year, according to a report by Rabobank.

While the short-term price outlook is "blurred", prices are expected to push higher over the longer term.

In the latest Rabobank Global Focus report, analyst Wayne Gordon said large harvests and a lacklustre growth in world grain usage would continue to put a dampener on prices.

"As a result, Rabobank is projecting the world stocks to use ratio for wheat to hit the highest level since the 2001-02 marketing year," Gordon said.

"Barring any contrary climate events, this should keep the Chicago Board of Trade benchmark wheat price in a range between $US5-6/bushel for most of 2010," he said.

The latest USDA world wheat crop estimates suggest the stocks-to-use ratio will hit 30.4% in 2009-10. In 2001-02, the ratio was 34.6%.

It fell as low as 19.6% in 2007-08, meaning the world had only 10 weeks' supply of wheat in store at the end of that season. It has only reached that low three times during the past 30 years.

The low stocks, coupled with rising oil prices, prompted wheat prices to climb to record levels in 2007-08.

But global wheat production hit 683 million tonnes in 2008-09 and it is forecast to be 676 million tonnes this year. With consumption estimated at 640 million tonnes in 2008-09 and 644 million tonnes this year, there has been a rapid build-up in stocks.

As a result, wheat prices have fallen and CBOT wheat futures were sitting on $US4.74/bushel earlier this week.

Rabobank said the 2009-10 season was one of extreme contrasts.

Globally, grains markets tracked in an up-down pattern in 2009 and this picture is unlikely to change until at least the second half of 2010, the bank said.