March 15, 2012

CBOT wheat futures may drop to US$5.10/bushel

Due to sufficient stocks which may reach a record by mid-2013, the Chicago Board of Trade (CBOT) near-month wheat futures will likely fall to US$5.10 a bushel and average US$5.90/bushel in the marketing year that begins June 1, a Chicago-based analyst said Wednesday (Mar 14).

Corn prices will likely hold steady between US$6.80-7.20 until the end of August due to tight inventories, but will fall to US$4.50-6.20 in the corn marketing year that begins September 1, due to lower incremental US demand for ethanol production, said Dan Basse, president of consultancy AgResource Co.

The world is awash with wheat and another bumper global crop, likely to be little changed at 691 million tonnes in 2012-13, will push closing inventories to a record 216 million tonnes, Basse said.

A tight corn supply is supporting wheat prices, but this may change from September because the US has almost reached a peak in ethanol consumption.

Rising demand for corn to use in ethanol production was a key factor in the increase in corn prices over the past several years. Ethanol producers in the US will use an estimated 4.86 billion bushels of corn this year and around five billion bushels in 2012-13.

Many ethanol producers lose money and around 92% of US gasoline is already blended with ethanol, leaving little scope for a further increase in production.

Producers are reluctant to raise the ethanol-blending ratio in gasoline to 15% from 10% because of logistical constraints, slowing demand growth, Basse said.

The use of corn as animal feed has also declined due to rising consumption of substitutes such as wheat and dried distillers' grains with soluble, or DDGS, a by-product of ethanol production, he said. This may drag corn prices below US$5/bushel next year, he said.

Soy prices are currently well supported due to drought hitting output in South America, and the near-month CBOT contract may rise to US$13.80-14.20 a bushel before falling from August to US$9.50-12 a bushel as farmers respond to higher prices by expanding acreage.

The emergence of Ukraine as a major corn producer and exporter will also weigh on prices.