Talk of trouble in China’s winter wheat crop was confirmed recently when the country signed large wheat import deals and the U.S. Department of Agriculture changed its global wheat supply and demand picture.
The USDA increased its forecast for Chinese wheat imports by five million tonnes to 8.5 million.
The department also cut its estimate of how much wheat would be carried into the 2013-14 crop year. The number dropped 5.4 million tonnes to 174.5 million tonnes mostly because China has fed more wheat to livestock.
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The USDA slightly increased its forecast of global production.
The net result of all of this was to lower global wheat stocks at the end of 2013-14 to 172.4 million tonnes, down 8.9 million from the June report.
Until now, the USDA expected 2013 to be a year of rebuilding stocks, but now the thinking is there will be a slight reduction.
It supports wheat prices, but of course it is not the last word on the supply and demand situation for the new crop year. As well, wheat’s price is linked to corn, and its price could weaken if the U.S. crop gets through the tasseling and silking stages without too much heat and dryness.
Getting back to wheat, some analysts think China could import as much as 10 million tonnes of wheat. Domestic sources say as much as 10 percent of the crop was damaged by rain at harvest.
China has bought soft red winter wheat from the U.S. as well as shipments from Australia and France. No deals for Canadian wheat have been announced.
The size of Russia’s wheat crop could also change in future USDA reports. Its forecast is now 54 million tonnes, but Russia’s government and private forecasters are putting the crop in a range of 49.5 to 51.5 million tonnes because of dry weather in some parts of the country.
Wheat price support could also come from Argentina, where the government is trying to limit exports of old crop wheat to control rising domestic flour prices. It is not clear yet what attitude it will take toward the new crop now in fields.
Such possibilities would support wheat prices, but on the other hand, crops are generally developing well here at home, in Australia and Europe, raising the potential of increased production estimates in those areas.
The USDA lowered U.S. ending stocks of wheat for 2013-14 to 576 million bushels, down from its forecast of 659 million in the June report and below analysts’ estimates for 632 million.
U.S. durum production was forecast at 58 million bu., down from 82 million in 2012-13.
However, the wheat market is closely linked to corn and the USDA’s numbers for corn and soybeans were negative for prices.
Weather forecasts clouded the market’s reaction to the USDA report. Traders rushed to push prices high enough to cover the risk from a forecast of hot, dry conditions for the second half of July in the western Midwest.
However, the forecast changed late in the week. Although still dry, the temperatures were not as hot.
If that forecast holds true, expect crop prices to once again drift lower.
The new Chinese demand prevents the wheat picture from being too gloomy, but it doesn’t wipe out what appears to be an overall lower trend for crop prices.
