Report shows wheat has best chance of rally
It’s hard to get grain traders’ eyes off the weather maps these days.
Each storm forecast in the dry American Midwest causes prices to drop and when the showers turn out less than expected, the markets rise.
But remember, the market’s daily fluctuations on weather are done within the context of the big picture provided by supply and demand reports generated by the United States Department of Agriculture and others.
Last week, the USDA forecast a record size U.S. soybean crop and the third largest corn crop.
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The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
Grain futures traders think dry weather will shrink yields lower than the numbers used by the USDA. They have thought this way for some weeks and have built up a weather premium in the market.
But if the summer drought doesn’t happen, the USDA soybean and corn numbers provide a sobering indication of just how much bounty the rich Midwest soil can provide.
It forecast an oilseed (mostly soybean) crop of 91.6 million tonnes, up almost 12 percent from 1999-2000 and a corn crop of 247.4 million tonnes, up three percent.
But the story in wheat is a little different. The department sees U.S. wheat production down three percent.
Around the world, the USDA has forecast smaller wheat crops in Canada and Australia and steady production in Argentina.
However, the European Union is expected to produce a much larger wheat crop at 106 million tonnes, up 9.2 percent from 1999-2000.
Chinese wheat production is expected to fall to 107 million tonnes, down eight million tonnes, due to a subsidy change.
When all the figures are tallied, USDA has forecast a smaller world wheat crop than in 1999-2000. World stocks in the summer of 2000-01 were slated at 109.4 million tonnes, the smallest since 1995-96.
That gives a stocks-to-use ratio of 18.3 percent, tighter than the ratio of 18.7 percent at the end of 1995-96 when grain prices were high.
This indicates wheat has a better chance than other grains to see its price increase next year.
Unfortunately, increases will be offset by the fact an inordinate amount of wheat stocks are held in the U.S. Its stocks-to-use ratio is 64 percent. And American grain traders’ attitudes are most affected by the domestic situation, which will also be contending with large stocks of corn and soybeans.
