November 1, 2011


US wheat sowings expected to fall as price weakens



Wheat planting in the US may fall in 2011/12 as compared to the same season last year due to the price signals sent by futures market which is encouraging farmers to plant corn instead.


The persistent, and atypical, discount in CBOT wheat futures to corn looks set to continue "into the foreseeable future" thanks to the opposed fundamentals of the two grains, Commerzbank said.


"It is different in the corn market this season, where supplies are very tight, to the wheat market, where there are quite abundant supplies," Commerzbank analyst Michaela Kuhl told.


The "unfavourable price trend" for wheat resulting from this dynamic "is likely to result in a smaller acreage for wheat in the US in favour of corn".


However, the need to fight for acres would at least "lend support to wheat at its current price level", she added.


Separately, Barclays Capital also forecast support to wheat prices from strong corn values encouraging a switching of grains. "We expect substitution demand for feed away from corn to bode well for wheat demand," BarCap analyst Sudakshina Unnikrishnan said.


Commerzbank's estimate for US sowings is more downbeat than that of the International Grains Council, which last month forecast plantings rising by a solid 6% a figure which took into account "this year's unplanted spring wheat acreage", when flooding kept farmers out of fields.


However, thanks to drought, US wheat sowings during the autumn planting window started at a slow pace, if playing catch up in recent weeks, with cut off dates already passing for claiming on so-called "prevent plant" insurance, after which farmers are viewed unlikely to continue seedings.


And, even much wheat which has been planted is currently seen unlikely to make it to harvest, thanks to the extent of the dryness in southern Plains states such as Oklahoma and Texas.

This area was dry over the weekend, while eastern states suffered unseasonal snowfall, and has no significant rain on the forecast, unlike other parts of the US.


While much of more northerly US is set for rain and snow over the next two weeks, a system on the forecast for November 6 to 12 heading across the upper Plains and western Corn Belt "is a total miss for the drought of ridden areas of the lower Plains", weather service.


Commerzbank's comments came as it flagged that "short positions are still dominant" in speculators' positions on CBOT wheat, despite a reduction of some 9,000 in their overall net short holding.


In corn, managed money a proxy for speculators lifted its net long position by 29,000 contracts to 187,000 contracts, data from the US Commodity Futures Trading Commission, the market regulator showed.


However, in soy, managed money cut its net long position by more than 7,000 lots to 47,000 contracts, the data showed.


"The latest CFTC data on market positioning reflects a mixed view of speculative financial investors on the future price trend of agriculturals," Kuhl said.


In agricultural commodity exchange traded funds, a recent trend of net outflows continued, and reaching US$58 million in the week to yesterday (Oct 30), Standard Chartered said.

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