June 12, 2012

 

Global wheat stockpiles to drop in 2013 on drought condition

 

 

As drought curbs production from the US to Russia, global wheat inventories are poised to decline next year by the most since 2007, implying tightening supply this season that may halt a three-month slump in prices.

 

Stockpiles on June 1, 2013, will drop 6.1% to 185.06 million tonnes from a year earlier, according to the average of 19 analyst estimates compiled by Bloomberg. The most- held options in Chicago give holders the right to buy wheat by June 22 at an 11% premium to the close on June 8. Prices may average US$7.25 a bushel in the third quarter, 15% more than now, Societe Generale SA said Monday (June 11) in a report.

 

The USDA updates its global crop estimates tomorrow, the first such release with both electronic and floor trading open on the Chicago Board of Trade (CBOT). Traders may face changes driven by below-average Midwest rainfall and worsening growing conditions for winter wheat across the US Yields are shrinking in Russia and growers in Argentina and Australia may plant less because of dry soil, according to reports from farm managers and agricultural researchers.

 

"Supplies are not as ample as they were expected to be just three or four months ago," Christopher Narayanan, the head of agricultural research for Societe Generale in New York, said by phone. "We have multiple crop problems, and that should support prices."

 

Wheat has fallen 13% since reaching an eight-month high of US$7.22 on May 21 and is down 3.4% since the start of January. The July contract rose US$0.25 Monday (June 11) to US$6.305 in Chicago. The Standard & Poor's GSCI Spot Index of 24 commodities declined 9.7% this year, and the MSCI All-Country World Index of equities rose 0.1%. Treasuries returned 1.7%, a Bank of America Corp. index shows.

 

The most-held wheat option provides the right to buy the grain for July delivery at US$7 a bushel by June 22 on the CBOT, followed by the option that allows the purchase of the December- delivery contract at US$8, which expires on November 23, exchange data show.

 

The US, the biggest exporter, will produce 2.212 billion bushels (60.2 million tonnes) this year, the average in a Bloomberg survey of 18 analysts shows. While that's less than the USDA's estimate last month of 2.245 billion bushels, it's still higher than the drought-damaged harvest of 2011, which came in at 1.999 billion bushels. Dry weather from Texas to Ohio may prompt the USDA to cut its winter-wheat forecast to 1.644 billion bushels, from 1.694 billion, the survey showed.

 

Winter-wheat conditions in the US fell for five straight weeks through June 3, while parts of Kansas and Oklahoma got as little as 5% of normal rainfall in the past month as of June 8, government data show. A dry spell in May that followed a damaging freeze in February may cut production in the 27-nation EU to 130.5 million tonnes from 137.4 million last year and 132 million estimated by the USDA last month, said William Tierney, the chief economist at AgResource Co., a research company in Chicago. Output in the 12 nations of the former Soviet Union may drop to 90 million tonnes from 114 million in 2011, he said.

 

"We are paring down the supplies in the major exporting regions where the world depends on sourcing wheat to meet food consumption," Tierney said. "We are tightening up rather significantly the comfortable surplus the world has had the last few years."

 

Reduced inventories may not lead to higher prices if Europe's widening debt crisis and a faltering global economy further erode demand for grain used in food and animal feed. Inventories of 185.06 million tonnes would still 47% higher than in the 2007-08 season, when prices reached a record US$13.495 in February 2008.

 

"The global supply of wheat is more than enough to meet both food and animal-feed demand this year," said Chad Henderson, a market analyst for Prime Agricultural Consultants Inc. in Brookfield, Wisconsin. "Recent rains in Eastern Europe and parts of Russia have stabilised yields, and we still have three months to get rains in Australia and Argentina."

 

An index of 55 global food prices fell the most in more than two years in May as the cost of dairy products, grain and sugar declined, the United Nations' Food and Agriculture Organisation said June 7. Crop yields in Kansas, the largest US grower of winter wheat, may be better than expected because plants matured early enough to avoid damage from the dry weather in May, according to Kansas Wheat, an industry group. An analysis of crops collected during the first week of the harvest showed farmers getting 40 bushels an acre on average, up from 35 bushels last year, spokesman Bill Spiegel said June 6 from Manhattan, Kansas.

 

While the USDA on May 10 forecast a 1.1% drop in global demand to 686.47 million tonnes in the year that began June 1, consumption during that period will still be the second- highest ever and exceed production by 1.3%.