December 10, 2009

Wheat stocks build into 2010-11; dollar may help price

Wheat is expected to see a third consecutive season of stock building in 2010-11, but further weakness in the US dollar could prompt speculative inflows into commodities, limiting the potential downside in wheat prices, Rabobank said in a report Wednesday (December 9).

World wheat output is likely to fall by 11.9 million tonnes, or 1.6 %, to 657.5 million tonnes in the 2010-11 season, its lowest level in three seasons, but still significantly above forecast consumption, leading again to an increase in stocks, the bank said.

Rabobank gave its first balance-sheet estimates for the major 2010-11 grain and oilseed crops in Wednesday's report.

It forecast a 1 % decline in world wheat plantings, with the largest acreage falls expected in the US, Ukraine, and Canada.

Despite the overall bearish fundamentals, one potential factor that may provide some fundamental support for wheat prices is a significant drop in global rice output, which could result in substitution demand, the bank said.

"Further weakness in the US dollar could lead to additional speculative money inflows, which may mitigate the potential downside for wheat prices," analysts Luke Chandler and Doug Whitehead said in the report.

They forecast the average price of the Chicago Board of Trade wheat futures in the first quarter of next year at US$5.30 a bushel.

The CBOT March contract finished Tuesday down 8 1/4 cents at US$5.39 3/4 per bushel.

With the supply-demand outlook for corn tightening through 2010, relative strength in corn prices could also support wheat prices, the analysts said.