November 9, 2009

 

Sluggish export demand and ideas that the US Department of Agriculture may cut its spring wheat production estimate have split analysts about how the government will adjust its carryout forecast this week.

 

The average of 16 analysts' estimates for 2009-10 US wheat carryout is 869 million bushels, up slightly from USDA's October estimate of 864 million, according to a Dow Jones Newswires survey. Of those polled, five said they expected USDA to leave its estimate unchanged, while five predicted an increase and six predicted a decrease.

 

The USDA is slated to issue updated carryout estimates in its November supply and demand report at 8:30 a.m. EST on Tuesday (November 10).

 

Prudential Bache expects the USDA will lower its production estimate and trim carryout to 860 million bushels, grains analyst Shawn McCambridge said. He said he had a feeling that some spring wheat acreage was abandoned, although the adjustment to carryout is "not a significant change."

 

The USDA resurveyed producers about their spring wheat harvests because many had not yet cut their crops when the last survey was done for a Sept. 30 crop report. The USDA last month said it planned to "re-contact respondents who previously reported acreage not yet harvested" to see whether new data justified any changes in November.

 

The USDA last month said there was "significant unharvested acreage of durum wheat" in Idaho, Montana and North Dakota and "a large proportion of other spring wheat acreage not yet harvested" in Idaho, Minnesota, Montana and North Dakota. Hard red spring wheat is used to make bread, and durum is used to make pasta.

 

Sid Love, analyst for Kropf and Love Consulting, estimated the USDA will cut wheat production by 20 million bushels from its previous estimate. He projected carryout will fall to 834 million bushels, the lowest estimate in the survey.

 

However, weak export demand may prompt USDA to cut its export estimate, which would work to expand carryout, analysts said. McCambridge said an adjustment to the export estimate was possible on Tuesday but that the government will likely wait another month to see how demand develops before making a change.

 

The US has faced stiff competition for business on the global export market because there is a lot of wheat for sale in the world. Foreign buyers aren't willing to chase prices higher and have been making purchases hand to mouth, analysts said.

 

Total weekly US wheat export commitments as of Oct. 29 were 55 percent of the USDA's target for the year, compared to the five-year average of 68 percent. The USDA currently projects exports at 900 million bushels.

 

"Slow demand pace, I think, is the big thing," said Brian Hoops, president of Midwest Market Solutions. He estimated carryout will rise slightly from October to 865 million bushels.

 

Other analysts expect to see USDA raise its production estimate, as opposed to reducing it. Bryce Knorr, analyst for Farm Futures, said an increase would follow "the trend we saw" earlier in the year.

 

Wet weather delayed spring wheat planting in the northern Plains, but a cool summer allowed it to develop without heat stress. That led to large yields but low protein levels, as crops need the stress to build protein.

 

"Obviously there were some wet conditions up there, and the protein quality was lower," Knorr said. "Overall, that's an indication of stronger production."

 

On the world balance sheet, analysts said they did not expect to see significant adjustments to production estimates for the Southern Hemisphere. The USDA last month pegged Australia's crop at 23.5 million tonnes and Argentina's crop at 8 million tonnes.

 

"At this point, we don't really expect major changes," Knorr said. "It really looks like Australia is kind of humming along here. The wheat crop in Argentina doesn't look like it'll have any major changes."

 

Rabobank Australia on Friday held its estimate for Australia's wheat crop unchanged at 22.8 million tonnes and said there was "some potential for upward revisions if the harvest remains broadly trouble free." There has been some talk of lower production due to drought in New South Wales, but "overall it looks like they're on track," Knorr said.

 

The estimate for Argentina's crop could dip a bit if the USDA wants to bring its estimate in line with the Buenos Aires Cereals Exchange. The exchange pegged output at 7.5 million tonnes a couple days after the USDA issued its October supply and demand report.