November 16, 2011

Russian wheat to overwhelm markets

Russia, along with Ukraine and Kazakhstan is producing enough wheat and corn to overwhelm markets this year.

This will probably cut into what were profitable exports markets last year for US and Europe. The Black Sea area, which has emerged as a major breadbasket in the last decade, was hit by drought in 2010 which knocked Russia and the Ukraine out of export markets and creating the base for the surge in US wheat, corn and soy prices.

However, rains have returned to Central Asia, knocking down US exports and pushing down the price of wheat to its open Monday (Nov 14) at US$6.11 per bushel, down 5.4 cents, on the CBOT.

Wheat traded above US$8 per bushel as recently as late August before confirmations of big wheat and corn crops from Central Asia.

US wheat exports are down 15 % in the marketing year that began September 1 and the USDA expects exports to drop further to a 25% decline as the export year continues.

Meanwhile, livestock producers in many countries use cheaper wheat as a feed option over more expensive corn when the wheat is available.

Corn futures opened down 6.6 cents per bushel to US$6.31 in Chicago. This is because corn historically trades about US$1-1.50 per bushel lower than wheat; any premium of corn prices over wheat is treated as a potential weakness to corn prices.

"December wheat traded as much as 25 cents per bushel under December corn last week, which might encourage increased wheat feeding. As long as Ukraine and Russia remain as active exporters on the world market, US wheat export forecasts may continue to slip," the Board of Trade said.