July 26, 2011

 

Analysts reduce year-end US CBOT wheat price predictions

 

 

Analysts and traders have lowered their price predictions for US wheat at the end of the year by 5%, reflecting competition from Russia's return to the global export market.

 

A new Reuters poll of 11 traders and analysts showed spot wheat futures at the Chicago Board of Trade (CBOT) ending the year at US$7.53 per bushel, 5% below forecasts by analysts polled at the beginning of the year.

 

In January 2011, before Russia rejoined the global export markets, a Reuters poll found that analysts expected CBOT soft red winter wheat prices to end the year at US$7.93 on average, down just US$0.0125 from the 2010 ending price.

 

Estimates for the year-end price in the latest poll ranged from US$6.00 a bushel to US$9.78 a bushel, with the average coming in 5% below the closing price at the end of 2010.

 

"Wheat will be under competition from the Black Sea wheat this year," said Jerry Gidel, analyst for North America Risk Management Inc.

 

Russia and Ukraine banned exports in 2010 due to a severe drought that ruined production in the Black Sea region. As of July 1 this year, however, Russia re-entered the market, and buyers such as Egypt have snapped up Russian supplies in their latest tenders.

 

Analysts still predict that wheat prices will be supported in the second half of 2011 by concerns over a scarcity of high-quality wheat supplies.

 

The March 2012 soft red winter wheat contract, which will be the front-month contract at the end of the year, was down US$0.16 to US$7.475 a bushel. September 2011 soft red winter wheat, currently the front-month contract, dropped US$0.1425 to US$6.78.

 

Some traders worried that the drought in the southern reaches of the US Plains this year and limited hard red winter wheat production will hamper planting of next year's crop in the fall. Severe flooding in the northern US Plains during planting season and high temperatures in July will curtail production of the US spring wheat crop.

 

Prices also could receive support from rising demand from the livestock sector, said Chris Manns, analyst for Traders Group Inc who forecast wheat prices ending the year at US$9.78 a bushel which would eclipse the 2011 high of US$8.9325 set in February.

 

"I think the demand for feed wheat will increase and wheat will have to follow everything higher," Manns said. "I just think wheat needs to rally to get to a premium versus corn again, like in past years."

 

Corn futures have traded near parity or even above wheat futures for about two months, making wheat an economical substitute for corn in livestock and poultry diets.

 

Wheat prices rose 47% in 2010 after two straight years of declines. During the past 10 years, wheat rose seven times, with the biggest gain coming in 2007 when prices surged 77%.