Global forecast | The International Grains Council pegged 2012-13 wheat production at 676 million tonnes
Prospects of a big North American wheat crop will trump the troubles in Europe and the Black Sea region when it comes to establishing values in 2012-13.
“I think it’s possible that there is a little bit of downside room on wheat prices,” said Vince Peterson, vice-president of overseas operations with U.S. Wheat Associates.
He believes wheat futures on the Kansas City Board of Trade could fall from $6.50 a bushel to as low as $5.50 when American farmers harvest what is expected to be a large hard red winter wheat crop.
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However, prices can’t fall too far. July soft wheat futures on the Chicago Board of Trade are barely above corn futures and the soybean-wheat spread is about $8 per bu., which is the lowest it has ever been.
“While there may be some downside, I think it would be a soft downside,” said Peterson.
He sees 58 to 60 million tonnes of total U.S. wheat production in 2012, up from 54.4 million tonnes last year. Supply is expected to exceed 80 million tonnes, which would be the fifth or sixth largest total in the last 20 years.
Peterson was stunned by Statistics Canada’s seeding intentions report calling for a 13 percent increase in Canadian wheat acres. However, the wheat increase was mostly due to an increase in durum rather than spring wheat, and the Minneapolis spring wheat futures price rose on the day of the report.
Good growing conditions in Western Canada could further pressure North American wheat prices.
However, Peterson said Canadian farmers might get more from the market than they have in the past.
“Under the (Canadian) Wheat Board system, spring wheat prices to farmers in Canada were much, much below U.S. spring wheat prices. Canadian farmers maybe didn’t realize that, but they were as much as 50 cents to $1 a bu. below U.S. prices.”
Peterson thinks Canadian growers will reap the rewards as Canadian and U.S. prices find an equilibrium under the post single-desk environment.
Prices could be supported by production problems elsewhere.
Late last week, the International Grains Council reduced its 2012-13 forecast for global wheat production by five million tonnes to 676 million tonnes. That is well below the estimated 695 million tonnes this year.
Peterson knows of an analyst who is forecasting an even smaller world crop of 665 million tonnes. The analyst is calling for a 7.4 million tonne contraction in the European Union’s crop, and reductions of 8.4, 5.2 and 2.9 million tonnes in Ukraine, Kazakhstan and Russia, respectively.
Russian prime minister Vladimir Putin said the country’s total grain exports in 2012-13 could match the 27 million tonnes that is expected to be shipped in 2011-12.
However, Peterson knows an analyst who has the ear of the Russian government who is forecasting a three million tonne decline in Russia’s wheat exports next year to 17.5 million because of dry conditions in southern Russia, where 84 percent of this year’s exports originated.
“We don’t think there will be a rush and a flood of harvest-time pressure pressing prices down in a big way this year as we may have seen in previous years,” he said.
Russian wheat that was $20 per tonne f.o.b. cheaper than U.S. soft red winter wheat out of the Gulf of Mexico in December is now selling for a $15 to $20 per tonne premium to U.S. wheat.
During his hour-long webinar, Peterson touched on demand prospects in some regions of the world where U.S. wheat competes head-to-head with Canadian wheat.
He expects U.S. wheat will be more competitive in markets where the CWB had been undercutting the U.S., such as the United States, Iraq, the European Union, Indonesia, Saudi Arabia, Algeria and Morocco.
“With the dissolution of the board, that practice virtually has to disappear,” said Peterson. “The net result is a very big win for the U.S.”
He also accused the CWB of dumping low quality wheat in the Indian subcontinent.
“Despite their claim that they produce all this great wheat, in fact what they do is dump at very low prices a great proportion of their wheat into Bangladesh and Sri Lanka and compete with the cheapest wheat on the Earth in doing that,” said Peterson.
He also highlighted Colombia, where U.S. shipments in 2011-12 were 300,000 tonnes below the 10-year average of 720,000 tonnes because of a Canadian free trade agreement implemented Aug. 1 that made Canadian wheat more desirable.
“This is a disaster we knew was looming,” said Peterson.
However, the $100 million loss suffered in 2011-12 will be avoided next crop year because of a U.S. free trade agreement that kicks in May 15.
Peterson said a big wild card in wheat markets is Iran, which usually buys about two million tonnes.
There is speculation that the country may import four million tonnes this year as it stockpiles grain in preparation for a military conflict.
