Bulging wheat bins around the world will push prices lower, says a market analyst.
In its latest World Agricultural Supply and Demand Estimates, the United States Department of Agriculture raised its global wheat production forecast by 2.6 million tonnes to 683.3 million tonnes.
“The crop got a little bit bigger. Now we’re firmly the second biggest crop of all time,” said Canadian Wheat Board market analyst Neil Townsend.
He can’t see wheat prices rallying in that type of hostile environment. In fact, he expects just the opposite.
Read Also
Canada’s plant hardiness zones receive update
The latest update to Canada’s plant hardiness zones and plant hardiness maps was released this summer.
“Without outside support, say the corn market holding it up, (wheat) prices should come off quite a bit,” said Townsend.
Kim Anderson, crop marketing specialist with Oklahoma State University, said the good news for Canadian growers is that there should be strong demand for high protein wheat to blend with some of the lower quality wheat coming from the Black Sea region and Australia.
“Some people are calling it a comfortable supply of wheat. I’m calling it just short of an excess supply of wheat in the world,” he said.
“However, there is not a comfortable or excess supply of protein wheat.”
That is why the spread between Minneapolis and Chicago wheat prices is the highest it has been since June 2008.
Townsend agreed that spring wheat will maintain its premium over Chicago wheat. But he expects the December 2012 price for Chicago soft wheat could fall below $6 per bushel by the end of the year, which would be about $1.50 per bu. below where it is today.
“I’ve read lots of people who are predicting a major price reduction,” he said.
“There will need to be one or two significant northern hemisphere crop problems to keep wheat in the same channel it’s in right now.”
Townsend worries that growers looking at wheat futures prices will be inclined to plant a big crop in 2012-13 because the potential returns look attractive right now.
“If you were to forecast it today, you would probably say it would be the record wheat crop of all time next year,” he said.
But a huge acreage increase could be disastrous because Townsend expects world wheat demand could fall next year for the first time in a long time.
The reason for his pessimism is that there won’t likely be as much feed wheat production in 2012-13 as there has been the last couple of years, and that means less demand from the livestock sector.
Townsend said it would be nearly impossible to make up for a 15 to 20 million tonne drop in feed wheat demand with a rise in food wheat demand.
While some questions were answered in the latest USDA report, there are still a couple of unknowns in world wheat markets — such as the size and quality of Australia’s crop and how much Russia will export.
The WASDE report forecasts 26 million tonnes of Australian production and 19 million tonnes of exports. The Australian Bureau of Agricultural and Resource Economics and Sciences is forecasting 20.4 million tonnes of exports.
But the bigger question is what will be the quality of those exports. Western Australia’s biggest grain handler said its feed wheat estimate has risen to 25 percent from 10 percent due to persistent harvest rains.
There are also questions about the WASDE forecast for 21.42 million tonnes of Russian grain exports, including 19 million tonnes of wheat.
Russia’s grain producers union says exports could top 25 million tonnes, which is a big difference that could influence grain markets. The country is on pace to ship 17 million tonnes of grain by the end of December.
Anderson said there is a tug-of-war between Russia’s grain growers who are keen to export the crop and prime minister Vladimir Putin, who doesn’t want the domestic cost of flour rising during an election year.
Putin has warned exporters not to book forward sales because he may implement export restrictions if domestic wheat and flour prices rise too much.
