WASHINGTON, D.C. (Reuters) – World wheat supplies will be tighter than expected as a devastating drought in Russia and its neighbours continues to erode healthy stockpiles.
However, the U.S. Department of Agriculture says there is no reason for rising prices to stage a repeat of 2008’s historic surge.
In its August report, the USDA cut its world wheat production forecast by 2.3 percent to 645.73 million tonnes, its first estimate since Russia, in recent years the world’s third largest wheat exporter, banned shipments to conserve domestic stocks.
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The trade had expected a cut to 650 million tonnes.
However, the USDA joined other government bodies in downplaying fears that the world was headed for another food supply crisis similar to two years ago, when Chicago wheat surged to a record above $13 US a bushel.
“Expectations that prices in the next few months will hit the record levels of 2007-08 are not substantiated by the reality of the global supply situation,” the department wrote.
Russian president Dmitry Medvedev said many farmers were close to bankruptcy and crops were lost on a quarter of Russia’s grain area.
“The FSU (former Soviet Union) numbers were breathtaking,” said Jerry Gidel, analyst for North America Risk Management Inc. “We haven’t seen USDA make an adjustment like that for some time.”
Wheat overshadowed the department’s forecast of U.S. corn and soybean yields that will push both harvests to the largest on record.
Traders also focused on demand for exports from the United States, underscored by a robust set of weekly sales and reduced forecasts for ending stocks.
“It (the report) shows the U.S. is an island of supply. The record corn and soybean crops will be needed,” said AgResource president Dan Basse.
The USDA aggressively cut Russia’s crop to 45 million tonnes, down 15 percent from its previous estimate and in line with Russian analyst SovEcon’s 43.5 million tonnes.
It reduced Kazakhstan by 18 percent to 11.5 million tonnes and Ukraine by 15 percent to 17 million tonnes.
It slashed Russian exports by 80 percent to a mere three million tonnes, factoring in Moscow’s ban on exports.
However, U.S. crops will help fill the gap, the USDA said, pegging production at record levels and beyond what traders had expected.
U.S. farmers are poised to harvest a record 13.365 billion bushels of corn, above trade estimates of 13.279 billion bu.
The soybean crop was pegged at 3.433 billion bu., 2.3 percent higher than trade estimates.
Yields for both crops also topped average trade projections.
The wheat crop was set at 2.265 billion bu., up from 2.216 in July.
However, the increases were not seen as bearish because the USDA also cut 2010-11 ending stocks for U.S. wheat and corn because of increased export expectations.
U.S. wheat exports were forecast for 1.2 billion bu., up 20 percent from the July estimate and the largest in three years.
Wheat ending stocks were forecast at 952 million bu., one percent less than traders had forecast, but it would still be the largest in 11 years.
For 2010-11, corn ending stocks were estimated at 1.312 billion bu., down from July, but slightly above trade estimates, and soybeans at 360 million bu., steady with July but above trade estimates of 319 million bu.
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