February 9, 2009

Only modest adjustments are expected on the US wheat balance sheet in the US Department of Agriculture's February supply and demand report, with 2008-09 carryout seen tightening slightly from last month.

 

The report, due out at 8:30 a.m. EST Tuesday, will include fresh estimates for ending stocks - what's left over after supply and demand are accounted for - and for world wheat production. The USDA could trim its estimate for Argentina's crop due to drought, analysts said.

 

The average of analysts' estimates for 2008-09 US wheat ending stocks is 649 million bushels, down a hair from the USDA's January estimate of 655 million, according to a Dow Jones Newswires survey of 12 analysts. Of the analysts surveyed, five predicted the USDA would leave its estimate unchanged from last month.

 

US wheat export demand has struggled lately amid competition from other countries, although it may be premature for the USDA to cut its export forecast from last month's estimate of 1 billion bushels, analysts said. There is still the possibility the US could see some demand from Brazil, which normally buys most of its wheat from Argentina, said Shawn McCambridge, analyst for Prudential Bache.

 

"I don't see any reason to get real aggressive in making changes" with the possibility of Brazilian business coming in, McCambridge said. He predicted the USDA would leave its carryout estimate at 655 million bushels.

 

Mike Zuzolo, analyst for Risk Management Commodities, said he expected the USDA to lower its forecast to 634 million bushels. The agency may raise its forecast for food and seed use and cut its forecast for imports, he said.

 

However, the 2008-09 wheat season is in "stocks-building mode," so carryout will likely increase, said Dan Cekander, analyst for Newedge USA. He pegged carryout at 670 million bushels.

 

World production in 2008-09 is expected to set a record due to favourable weather and expanded plantings by farmers looking to take advantage of high prices. The marketing year began June 1.

 

"The 2008-09 world wheat supply has been established, while world wheat demand still remains questionable, given the world crisis," Cekander said in a note. "But the conclusion remains that the 2008-09 wheat season is in a stocks-building mode, as both US and world stocks are forecast to build substantially."

 

On the global balance sheet, the USDA may trim its estimate for Argentina's crop by 500,000 tonnes to 1 million tonnes, analysts said. The agency in January pegged production at 9.5 million tonnes.

 

A decrease would bring the USDA's projection more in line with Argentina's Agriculture Secretariat, which pegged production at 8.3 million tonnes in January. Drought took its toll on yields, the Secretariat said.

 

The USDA is "behind the curve" with its Argentina crop estimate, said Sid Love, analyst for Kropf & Love Consulting. He said he "wouldn't be shocked if they came down about a half million tonnes or so."