April 1, 2008

 

US wheat futures may drop on higher global wheat production

 

 

Expectations for a significant increase in 2008-09 global wheat production will push deferred US wheat futures sharply lower through the summer and fall, analysts said Monday (March 31, 2008).

 

Chicago Board of Trade December wheat could drop as much as US$2 per bushel this year as high prices are thought to have spurred an expansion of acreage around the world, said Bill Tierney, executive vice president for research and marketing at John Stewart & Associates.

 

The contract Monday dropped to the exchange-imposed limit of 60 cents to US$9.60.

 

The sharp setback is probable even though wheat industry members continue to worry about poor weather in the US, Tierney said. Wheat-growing areas in the western Plains have been too dry, while parts of the Midwest and Delta have been too wet.

 

"I think most people in the market are beginning to accept that new-crop prices have significant further downside," Tierney said. "I think most people understand that, to a large extent, any problem that we have with our yield is going to be offset by the anticipation of a record global crop."

 

The USDA estimates US growers in 2008-09 will plant wheat on a total of 63.803 million acres, up from 60.433 million last year. Winter wheat plantings are pegged at 46.840 million, up from 44.987 million in 2007, while plantings of spring wheat other than durum are seen at 14.333 million, up from 13.297 million in 2007.

 

World wheat production could increase by around 45 million to 55 million tonnes this year, said Terry Reilly, analyst for Citigroup. Global wheat production in 2007-08 was 604.961 million tonnes, according to the USDA.

 

A general rise in foreign production of minor coarse grains, including barley, sorghum and rye, will also weigh on wheat, Reilly said. Increased output of minor grains will allow the countries to ration demand given high wheat prices, he said.

 

CBOT December wheat could trade around US$7.25 in the second half of the crop year, Reilly said.

 

"I believe the global situation is going to lead wheat lower, rather than just the US," he said, adding that the market could see wheat at US$7.25 by sometime this fall.

 

The price break could come as early as this summer if wheat crops in the US, Europe, China and the Black Sea look good, Tierney said.

 

There also are bearish expectations that the world will continue to rebuild stocks in 2009-10, he said.

 

The USDA estimates quarterly wheat stocks as of March 1 were 710 million bushels. That was down from 857 million the previous year but higher than what analysts had expected.