August 27, 2010

Wheat rally may end on sufficient global stockpiles

"I don't see wheat prices going significantly higher," said Sunny Verghese, chief executive officer of the Singapore-based commodities trader. "There are enough wheat stocks to take care of the shortages."

 

Futures surged to US$8.68 a bushel on Aug 6, the highest price in almost two years, after Russia, the world's third-largest grower last year, said it would ban grain exports from Aug 15 until the end of the year. The most-active contract has jumped 51% since the end of May and traded at US$6.94 in Singapore.

 

An end to the rally may help cool inflation after the United Nations Food & Agriculture Organisation's Food Price Index climbed to a five-month high in July.

 

The International Grains Council Thursday (Aug 26) cut its global wheat production forecast to 644 million tonnes, 1.1% lower than its estimate the previous month, because of dry weather in Russia, Ukraine and Australia, and excessive rain in parts of the EU. The council increased its consumption forecast to 657 million tonnes, from 655 million a month earlier.

 

Still, the harvest will be the third-highest on record, the council said, while global stockpiles, which were forecast to drop eight million tonnes to 184 million tonnes, "would still be at a comfortable level."

 

World wheat inventories are forecast to drop 9.9% to 174.76 million tonnes at the end of the 2010-2011 marketing year, the second-highest level since 2001-2002, according to data from the USDA.

 

Russian wheat production will plunge 34% to 41 million tonnes in the 2010-2011 season that began July 1, from an estimated 61.7 million tonnes a year earlier, the USDA forecast. Harvests of all grains may slump to 60 million tonnes, from 97.1 million tonnes, according to the Russian government.