April 29, 2011

 

Global wheat will fall behind in the fight of feed grains

 

 

Corn and soy markets have been consistently bullish and could remain there for most parts of the year but wheat might not be experiencing the same effect as volume of wheat are more this year than those of corn or soy.

Unlike corn and soy, whose exportable supplies are grown primarily in North and South America, wheat is truly a global commodity, grown in many countries both north and south of the equator. While weather issues in some of the larger producers spiked wheat prices last year, production is getting back on track in 2011.

In addition to supply, wheat is not fully sharing in the demand boom experienced by corn and soy. The growth of BRIC nations is bringing exploding growth of a new middle class that is rapidly adding meat to their diet. As soymeal is a main component of many animal feeds, soy demand has surged in recent years similar to corn. In addition to animal feed, corn also now feeds a demand sector from the ethanol industry. The USDA estimates over 40% of the 2010/11 US corn harvest will be turned into ethanol.

Wheat is not used for biofuel production, and it comes in a distant third as an animal food.
 

While wheat prices can benefit from growing populations and potential inflation, it has not matched corn and soy in adding new avenues of demand. In grains, there is no greater fundamental than the stocks to usage ratio; a figure that measures the amount of stocks available at the end of the crop year (September 1) versus the projected demand for the upcoming year.

While the 2010/11 US stocks to usage ratio for corn approaches the second lowest on record at 5% for 2011 and soy stocks to usage tumble to paltry 4.2%, wheat stocks to usage remain at a relatively hefty 34.2% for the year.

This is a primary reason why wheat has not tracked corn and soy as closely in their respective bullish ascents.

On a global scale, despite production setbacks in Canada, Russia and Australia last year, global ending stocks to usage at 27.6% in 2011 will still be far heftier than those of corn or soy.

These supply figures indicate that the wheat market will enjoy a more stable supply cushion to begin the 2011/12 harvest season than will corn or soy.