Global wheat stocks at the end of 2010-11 will be smaller than the previous year.
But the question is how much smaller and will the level get low enough to give wheat prices sustainable support. Since the beginning of July, Minneapolis wheat futures have risen about $1 per bushel.
Earlier this year, the United States Department of Agriculture had expected production to exceed demand again, resulting in a slight increase to ending stocks. That had put wheat prices in the doldrums.
But in its July report, USDA dropped its year-end stocks number to 187 million tonnes from 194 million, reflecting problems in Canada and the former Soviet Union.
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The new number represents a stocks-to-use ratio of 28 percent, which is better than the 30 percent ratio of the 2009-10 crop year just ending.
But it is still a long way from 2007-08 when ending stocks fell to 124.4 million tonnes for a stocks-to-use ratio of 20 percent. That sparked the panic that drove Minneapolis wheat above $19 per bu.
Last week, the wheat market was shaken by several reports from Europe and Russia that cut crop estimates to levels lower than what the USDA forecast.
French analyst Strategie Grains cut its estimate for the European Union’s 2010 soft wheat crop to 129.5 million tonnes, down 3.6 million from last month. The number is now smaller than last year’s crop.
Private forecaster SovEcon cut its forecast for Russia’s 2010 grain crop to less than 75 million tonnes from 77-81 million tonnes the previous week due to severe drought.
Russia harvested 97 million tonnes of grain in 2009.
A Ukrainian forecaster also shrank its production outlook because of excessive rain.
Given the worsening situation, USDA will likely further reduce its production and ending stocks forecast next month.
Let’s say it slashes global ending stocks by 15 million tonnes. Even then, that would only lower the stocks-to-use ratio to 26 percent, a number the market would still see as fairly comfortable.
That works against the wheat market climbing much higher than where it is now.
The greater hope for a sustained rally comes from corn, focusing mostly on the United States.
The USDA’s July report forecasted domestic corn stocks at the end of 2010-11 would fall to 1.37 billion bu. for a stocks-to-use ratio of only 10 percent. Put another way, it represents 36.5 days of supply.
That is based on an average national yield of 163.5 bu. per acre. There are forecasts the Midwest will heat up later this month, hurting corn pollination, potentially lowering yield.
The already tight corn stocks situation could get tighter, driving prices higher, and like a rising tide that lifts all ships, carry wheat and oilseeds with it.
