June 12, 2007

 

World wheat supplies seen to remain tight amid boost in production

 

 

The world wheat market is projected to remain tight in 2007/08 despite a a foreseen significant improvement in production while global consumption is projected to rebound slightly, with high prices expected to restrain growth and import demand, reports the Foreign Agricultural Service (FAS) of the US Department of Agriculture (USDA).

 

FAS-USDA says global trade is likely to be nearly unchanged year to year with consumption expected to outstrip production. Global ending stocks are forecast to fall to their lowest levels in 25 years.

 

Reduced exportable supplies by several major exporters are seen as dry weather hits the EU-27 with total production only expected to be slightly above last year's below-average harvest.

 

Sharply reduced carryin stocks, however, including depleted intervention stocks, could mean less exportable supplies, especially if the Commission finds it necessary to restrict exports in order to dampen high domestic prices, says the report.

 

Wheat exports from Argentina are also projected to drop as production shrinks due to shift in acreage for more profitable crops. Canada is also expected to reduce shipments due to a significant decline of stocks and a shrink in harvest area in favour of canola.

 

The USDA said expected big wheat crops in Russia and Ukraine will partially offset dismal supplies as Russian exports are seen to hit record volumes, and will likely displace reduced EU shipments into key Mediterranean markets. Russia has become the largest supplier to Egypt during the past two years, and that will likely continue while Ukraine's 2006/07 exports were curtailed by government export quotas to protect tight domestic supplies. A Ukrainian bumper harvest should alleviate that concern and provide much more grain to be exported, especially to the European Union.

 

Australian exports are forecast to increase from a foreseen recovery in production due to last year's drought. However, supply will not be available for another six months when the new crop is harvested due to uncertainties of crop size, the report said.

 

US wheat production, particularly for hard wheat, is expected to be more abundant as exports will be bigger due to reduced competition from high-protein Canadian and European supplies, according to the USDA. US soft wheat, however, will face stiffer competition from the large Black Sea region crops but overall exports are seen to be higher with US market share is expected to rise.

 

India is seen to be an important importer this coming year although volumes are likely to be smaller due to larger domestic harvest, the USDA said. However, government purchase is down as farmers took hold supplies for higher prices. The government has consequently already taken the unusual step of opening a million tonne import tender even though the domestic harvest has only recently been completed.

 

Imports by China and Pakistan are expected will remain at fairly low levels and both of countries will continue to be net exporters, the USDA said.

 

Markets such as EU-27 and Israel are expected to boost imports this year due to greater supply availability from the Black Sea region. European Union import quotas for low and medium quality wheat could be completely filled this coming year, as opposed to 2006/07 when there was a scarcity of Ukrainian supplies during the second half of the season.

 

Imports by North African countries are expected to rise, driven by a much smaller crop in Morocco where conditions have been dry. Egypt is expected to purchase slightly more wheat, getting its bulk from Brazil and making it the biggest market for Brazilian wheat.

 

In the Western Hemisphere, less import demand is expected for Brazil due to high domestic prices. The grain, however, remains Brazil's second highest imported commodity in 6 years and will likely account for the vast majority of Argentina¡¯s exports. Mexican imports are seen unchanged, although with a larger Hard Red Winter crop US sales could replace some Canadian sales. US imports are estimated down from last year, primarily as a result of smaller soft wheat imports expected from a short crop in Ontario.

 

For April, US Hard Red Winter (HRW) and Soft Red Winter (SRW) prices jumped on the recent US Easter freeze, but eased on reports of improved crop prospects. For the month, HRW rose US$7 per tonne, with Hard Red Spring (HRS) up US$7, SRW up US$26, and Soft White (SWW) up US$3.