Analyst says exports may fall short

Wheat market | While numbers are up, U.S. analyst is unsure if wheat exports will meet estimates

The pace of North American wheat exports has been picking up, but the U.S. will still fall short of its 2012-13 target, says an analyst.

Arlan Suderman, senior market analyst with Water Street Solutions of Peoria, Illinois, thinks exports could be 1.5 to two million tonnes short of the U.S. Department of Agriculture’s 28.58 million tonne forecast.

That would bump up ending stocks one to 1.5 million tonnes above the USDA’s estimate of 18.82 million tonnes, which is part of the reason wheat prices have faltered of late.

The lower numbers come despite a vastly improved export program in recent weeks.

U.S. wheat sales have struggled for most of the year, hovering in the range of 10 to 15 million bushels per week. However, they have increased to between 23.9 and 25.7 million bu. in the last two weeks.

“Our best business generally comes after alternative sources have started to dry up, and that started happening over the last several months,” said Suderman.

However, the United States is still 3.6 million tonnes behind the pace it needs to be at to meet the USDA’s export target. Some of that ground will be made up before the May 31 end of the U.S. crop year, but not all of it.

“We’re certainly not in danger of running out of wheat,” said Suderman.

The unexpected interest from China is one of the reasons for the recent surge in sales. There are reports that China bought 350,000 tonnes of wheat from the U.S. last week in addition to 100,000 tonnes from Canada and 400,000 tonnes from Australia.

A report from the U.S. agricultural attaché’s office estimates China’s 2012 wheat production at 108 million tonnes, which is well below the USDA’s official estimate of 120.6 million tonnes.

Fusarium head blight and other diseases hurt the crop.

The attaché report said Chinese wheat prices rose nine percent between August and January, a strong indication that production and supply are far lower than China’s official production estimates.

Bruce Burnett, weather and crop specialist for CWB, has been saying since January that China’s crop would be 15 to 20 million tonnes short of expectations.

“We’re starting to be proven more or less right on this,” he said.

Burnett believes China is replenishing its wheat stocks at a time when international prices are attractive relative to domestic prices.

A second year of substandard quality and poor production in China would significantly affect wheat markets.

Burnett said it took longer than he anticipated for markets to turn to U.S. wheat, but there are strong signs that is finally happening. For example, Turkey recently bought U.S. soft red winter wheat because its usual suppliers in the Black Sea region have run out.

“That does not typically happen,” he said.

However, Burnett agreed with Suderman that U.S. wheat sales will have to do some “heavy lifting” to meet the USDA’s export target. Exporters will have to string together quite a few weeks of impressive sales, he added.

Burnett said Canada’s wheat sales have been strong. CWB expects an export program one to two million tonnes bigger than the 13.9 million tonnes shipped in 2011-12.

He believes that is still feasible, depending on logistics and how early spring fieldwork starts. Agriculture Canada pegs exports at 14.6 million tonnes.

Suderman said how the U.S. export program finishes will largely depend on Brazilian demand.

“That gives us our best hope for increasing exports as we go through the rest of the winter and into spring.”

In the meantime, all eyes are on the condition of the U.S. winter wheat crop. It received welcome moisture in the form of wet snow last week.

There was another storm at the beginning of this week, although it was accompanied by strong winds that blew away some of the snow cover.

Suderman said the weather is expected to return to a dry pattern until the crop comes out of dormancy in mid to late March, which would bring back a bullish sentiment to wheat markets.

“We will not run out of wheat before the end of the current marketing year. The question is, will we in the next marketing year?” he said.

The bullish sentiment would be supported by expectations that eight to 10 million tonnes of wheat could find its way into U.S. feed markets this summer because of falling wheat prices and tight corn supplies before harvest.

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