Wheat prices should remain strong: analyst

Drought in Argentina | Brazil could be a major importer of Canadian and American crops

World wheat prices will likely show resilience over the next few months, depending on how things play out in other countries. 

Colin Hulse, a market analyst with FCStone, said a number of factors could positively affect global wheat prices. 

Top among those is production in drought stricken areas of Argentina.

Wheat production in Argentina will be low and quality will be poor, Hulse said.

It means Brazil and other countries that normally buy from Argentina will be importing from other areas, such as Canada or the United States.

Brazil’s wheat imports from the U.S. are expected to be up sharply this year, in the range of two to 2.5 million tonnes.  

“I think one of the main places we have to watch right now is Argentina to see how much smaller that crop gets and probably equally important is how bad the quality will be,” Hulse said.

“Bushels are one thing, but if it’s still shrivelled and you can’t make a good loaf of bread out of it, then they’re going to have to go find their … wheat somewhere else.”

Analysts watching the Argentine crop are projecting production as low as 10 million tonnes this year, but Hulse said actual production could come in as low as nine million tonnes, depending on how the crop finishes. 

There are already indications that the country will suspend exports, meaning other countries that buy Argentine wheat will be shopping elsewhere, presumably in North America.

The impact that Argentina’s crop will have on North American wheat prices should be known in the next month or so.

“What will that do to the wheat market here?” he said.

“We’ll probably know within the next 30 days just how bad it is.”

Hulse said production in the Black Sea region and elsewhere is helping keep world prices in check.

It’s hard to be too bullish about wheat prices in the near term, but there are reasons to expect a brief rally, he added.

Many key production areas harvested large crops this year, but global stocks entering 2012-13 were low, and many countries are attempting to rebuild domestic stocks.

Global supplies of high protein milling wheat are short of expectations in Canada, the U.S. and other countries.

Premiums for high protein milling wheat are also likely to be more common, he added.

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