October 15, 2010

Global wheat output to regain surplus in 2011

World wheat output will return to surplus next year, but not by enough to refill inventories by more than a fraction, analysts said, forecasting that Chicago prices will remain above US$6 a bushel for at least two years.

The bank forecast a jump of more than 5% in wheat production in 2011-12, the sowings for which have begun in northern hemisphere countries, as growers raise plantings to capitalise on firmer prices.

Analysts said that EU, US and Canadian farmers are expected to expand wheat plantings at the expense of other crops. However, with consumption also to grow, in the absence of cheap alternatives, even the world's third-biggest wheat crop looked unlikely to surpass consumption by much.

As a proportion of consumption, inventories would actually looked set to tighten a fraction, with the stocks-to-use ratio, a key measure of pricing potential, set to edge lower to 25.1%.

The bank said it saw "little downside risk" of wheat prices falling below US$6 a bushel in Chicago heading into the first quarter of next year, and forecast that level holding until at least the last quarter of 2012.

Prices would, for now, need to remain high to "encourage major exporters to draw down stocks to potentially tight levels", with those in Europe, where shipments have risen by more than 30% so far in the 2009-10 crop year, set to continue to outperform those in the US.

The EU has been the first port of call for importers scrambling to replace supplies lost since Russia, the world's third-ranked wheat exporting country last year, in August banned shipments after the worst drought on record ravaged its crops.

Strategie Grains also on Thursday (Oct 14) lifted its estimate for Europe's wheat shipments by 500,000 tonnes to 17.8 million tonnes, saying the region would "need export its entire availability in order to meet demand on the world market in the wake of Russia's export ban and the slump in export volumes from Ukraine."

Russia's wheat production, estimated at 40-45 million tonnes, will revive to 51.2 million tonnes next season, analysts said, a figure in line with the 52 million tonnes forecast in a separate report from analysts at Australia & New Zealand Bank.

This figure, reflecting a forecast that winter sowings will fall to 13 million hectares, after drought held back early plantings, will be insufficient to return Russia as a dominant force in exports.

The total harvest "will more than cover Russia's domestic needs, but will result in an exportable surplus of only 9 million tonnes," analyst group ANZ said.

This is half the level of last year, and meant Russia would not "dictate" the wheat market in 2011-12 has it had done previously, when its strong price competition had curbed international wheat values.