March 29, 2004

Wheat Supplies Sufficient In 2005

This month's sharp speculative rally in the US futures markets was yet another symptom of the increasingly tight outlook for feed grains and oilseeds, driven by historically low stocks and a combination of strong US domestic and export demand, the London-based International Grains Council (IGC) said in its latest market commentary.

For the importing countries, this meant a double whammy. Together with continued high ocean freight rates following a surge in crude oil prices, the rise in grain prices meant higher import cost at a time when the outcome of the approaching northern hemisphere harvests was uncertain.

Higher maize (corn) import prices in Asia triggered new purchases of feed grade wheat mostly from Australia. Rocketing US soyabean prices gave a further lift to maize, although this grain was also supported by solid feed and ethanol use as well as strong exports, together with projections for renewed market tightness in 2004-05, even if output rises, IGC said. It added that avian influenza concerns were less evident in the markets as the countries affected took measures to rebuild heavily culled poultry flocks.

Forecasting wheat production in 2004 at 601 million tonnes (up a sizeable 49 mt from the weather-affected output of 2003) following anticipated larger crops in Europe, the CIS and India, IGC said world consumption in 2004-05 would rise by 13 mt to reach 601 mt to match production.

Demand for wheat-based foods is expected to continue to grow in many countries in Far East Asia due to population increase, economic growth and the effects of urbanisation. In China, however, demand will contract as diets become more varied, while better supplies of rice and coarse grains in India may keep wheat consumption below recent exceptional levels, the report observed.

World trade in wheat is forecast unchanged from 2003-04 level of 99 mt.

China's imports are forecast to rise to 7 mt in 2004-05 (from 2.5 mt) due to large crop shortfall. Brazil is likely to import more wheat, while purchases by Near East Asia and North Africa are forecast to rise from the current year's low levels.

Export availabilities should be more than sufficient to meet import demand in 2004-05, and despite low carry-ins, marketing year supplies in the five major exporters are forecast to rise by 17 mt, according to IGC.