August 23, 2004
US Wheat Exports Start Strong, But Struggles Lie Ahead
The U.S. wheat export pace has started off the 2004-05 marketing year running ahead of last season when U.S. demand came in at its highest level in eight years. However, analysts expect a near-record world wheat crop this season to start chomping down on that demand.
As of Aug. 12, or 11 weeks into the 2004-05 marketing year, U.S. wheat shipments inspected for export are running 7.3% ahead of last year's pace and U.S. export sales on the books are running 17% ahead.
But as recently as the August supply and demand report, the U.S. Department of Agriculture lowered its 2004-05 U.S. wheat export forecast by 25 million bushels to 950 million. This is down from the 1.159 billion bushels exported last season.
Trade sources point out that the trim in U.S. demand was necessary based on the forecasts for a major jump in world wheat supplies.
In its August report, the USDA's projected a near record world wheat crop of 609 million metric tons, with foreign output accounting for a 64-million ton increase on the year. The USDA also sees world wheat endings stocks up 10 million tons on the year, which marks the first year-to-year increase since 1999-2000.
Analysts said U.S. demand is traditionally stronger at the start of the year as the U.S. wheat harvest is first to come on line and make its way into export market.
"We should see a slow down here. The (European Union) wheat harvest is winding down and more supplies are making their way into the hands of exporters," said Bill Nelson associate vice president for A.G. Edwards & Sons in St. Louis.
He adds that this will continue as wheat harvest in other countries comes along, with the Canadian spring wheat harvest lurking nearby and then eventually in Australia and Argentina.
U.S. wheat has already been displaced by French grain in multiple export deals with Egypt. In 2003-04, the Egypt was the largest buyer of U.S. wheat. Another sign was seen recently when a wheat purchase made by Pakistan included some Russian origin grain for the first time.
Dan Cekander of Fimat Futures in Chicago said, "The E.U. and former Soviet Union will continue to sell. We will repeatedly see a slow export pace."
Trade sources also eye the fact the 2004-05 marketing year began with the benefit of sizeable Chinese sales made in January for both 2003-04 and 2004-05. And in that portion of the Chinese commitments made for 2003-04 were also rolled over to the current marketing year.
As of last Thursday, U.S. 2004-05 sales to China totaled 1.9 million tons, of which 733,700 tons had been shipped. This compares to just 75,700 tons of the total China wheat sales on the U.S. books for the same time last year.
Because the bulk of the Chinese demand has been for the soft red winter and hard red spring wheat classes, sales for those varieties are running ahead of last year's pace. Meanwhile, commitments for the hard red winter wheat class are running at a lag on the year.
Currently, the USDA forecasts exports for HRW wheat to be down 31.4%, HRS wheat down 11.9%, but SRW wheat demand to be up 8% on the year. These compare to overall U.S. demand that is expected to be down 18% from last season.
Still Nelson said he remains more optimistic on U.S. demand compared to the USDA, citing the potential to see more China demand this fall and a weaker U.S. dollar compared to other major world currencies.
Nelson said China has been a steadily taking shipment of its U.S. wheat purchases, with a small amount consistently reported in weekly inspection reports.
Nelson also points out that two seasons ago, when U.S. exports struggled against a strong U.S. dollar versus other major world currencies and a lack of Chinese demand that the U.S. was still able to export 850 million bushels.
"The value of the U.S. dollar compared to two years ago is pretty good," said Nelson.
Meanwhile, Cekander forecasts 2004-05 U.S. exports at 965 millions bushels. "That's more optimistic than the USDA, but not by much," he said.
Terry Reilly with Citigroup in Chicago said he agrees with the current USDA export forecast, citing that the large global crop will take away from the benefits received from the weaker U.S. dollar. He points to the fact despite the weaker dollar many traditional U.S. importers are already turning to other countries to source a portion of their wheat needs.
U.S. traders point out that U.S. wheat is more reliant on demand than the other major commodities amid a greater number of major world wheat exporters. In 2004-05, the U.S. is forecast to produce only 9.5% of the world wheat crop, but 42% of the world corn crop and about 35% of the world soybean crop.
At the same time, the USDA forecasts the U.S. to export 45% of the 2004-05 U.S. wheat crop, compared to 19% of the U.S. 2004-05 corn crop.