Against that, Ukraine might lose 25-30% of its
winter wheat crop. Assuming more of this land
went to maize than spring wheat that could mean
5m or 6m less wheat next summer from this
source, However, even from this year’s bumper crop, Ukraine is only expected to raise exportsfrom 4m to 7m tonnes – not the biggest factor
in the current highly competitive export market.
More important may be whether Russia,
Kazakhstan and European countries manage torepeat last year’s good yields and whether theUS, Canada (which plans to raise are by 12% !)and Australia get the right weather for plenty of good milling quality wheat.
The current supply/demand situation for thesegrades looks better than a few months ago, whenUS Dark Northern Spring wheat for export from
the Gulf was trading fob terms at $420/430 per
tonne (hitting a high of $579 in the summer).
The January 2012 cost has fallen to a 13-monthlow of $366/tonne.
Whether or not the world gets a 700m or
650m tonne wheat crop for the coming season,
it will also start with massive carryover stocks
from this year, equal to 16 weeks’ consumption.
If the crop does reach the upper end of forecasts,
a burdensome wheat supply may have to be
priced lower to raise its share of the feed ration – unless of course, maize crops in the Americasor elsewhere do run into serious problems.
EU wheat prices as reflected on the Parisfutures market dropped from a high of �209/ tonne in early January to �194 a week later, then back to the �208 again recently. It seems
remarkable that the European markets are tradingso high against the wheat supply backdrop. Back inDecember, for example, EU March milling wheat
could have been bought for just �179.75/tonne.
London feed wheat futures at the same time
were around £140.50/tonne but have recently
breached £168.50. Moreover, feed demand in
the UK has been unusually slow for the time of
year with compounders reportedly intent on
making sales than wheat and other commodities.
However, markets here are largely following
the US response to Argentine weather/crop
reports with the other eye on Euro-zone issues
and their effect on the single currency’s valueversus the dollar. More volatility is likely aheadas these issues are resolved (or not) although
some analysts are looking for a possible further slide in EU soft milling markets into 2012 due to the ongoing weight of export competition and the possibility this will lead to end-season wheatstocks turning out larger than expected.
Russia’s aggressive early season exportcampaign – a key factor in setting low world
and EU wheat prices - appears to be easing now
as most of the freely available quality grain getsused up and its domestic and export prices rise.
nagging Euro-Zone debt crisis lurches on withoutreal resolution but maybe with a little less impact
from the markets. Financial pundits continue
to warn of potentially severe repercussions for
global economic growth and thus on demand for food, feed and fuel commodities. It has been a big
restraint on grain and oilseed bulls but markets
seem to have grown tired of listening to this
story. A steep drop in demand for ocean freightand lower shipping costs for grain also suggests
something is slowing down. Yet the total export trade estimates for the major grains and oilseeds
in 2011/12 (ends June 30 for wheat, Sep 30 for coarse grains) remain relatively robust.
Meanwhile, the speculators who played such alarge part in record grain and oilseed prices over
the last two or three years are still there but a
less strident force, having not got the profits they expected last year for investments in wheat and
soyabean futures at least. We can expect some
banks and hedge funds to continue trying to
talk prices back up at the first hint of a weather
problem, especially for maize with its record
low stock/use ratios. But aside of the Argentinedrought factor, 2012 does not at this stage look
like a promising year for the funds to gamble
again on price rises.
Main commodity highlights sinceour last review
Will wheat prices drop back?
Although not directly affected by the South
American drought threat, wheat joined the end-
year rally in soyabeans and maize, even rising
faster than the latter as funds who got into thehabit of selling this surplus market were forced to buy back some of these positions. There was
also much talk of wheat’s value as a feedgrain
rising if Latin American weather did cut suppliesand drive up prices of maize.
European wheat prices had to follow the
US/world trend in first half January with addedsupport from the weak Euro which dropped to
15-month lows against the US$ at one point. Thiscould boost EU export sales prospects although
there has been little sign of any incoming trade
bonanza yet amid still plentiful supplies fromNorth and South America, Australia and CIS
The USDA’s US wheat planting estimates were
also bearish (up 3% on last year’s) larger than
expected and focused on hard red winter wheat
(+6%), the mainstay of US exports and a top
indicator of world bread wheat value. If US spring
wheat plantings went up by the same amountand national average wheat yields returned to
the 2010 level (46.3bu/acre), the crop would be
closer to 60m than last year’s 54.4m.
one third this season and why prices in both
markets were 20% cheaper in January 2012 than
this time last year .
That trend may continue. World consumption
of wheat may be up by 27.5m tonnes or 4%
this season but production is growing faster, so
stocks will rise. In fact, the current USDA forecast
(for June 30 2012) is for a world carryover of 210m tonnes – 31% of consumption needs(about 16 weeks supply). Some analysts even
put them higher than the all-time record 211mof 1999/2000.
At the same time, the International Grains
Council is forecasting world wheat sowings 1.7%
higher for 2011/12 crops. If yields hold steady,
that could deliver the first world crop in excessof 700m tonnes.Steady yields might be a tall order for some
countries. Last year’s world average wheatyield was a record 3.1 tonnes/hectare (+7%)
eclipsing a slight decline in sowings. This winter,
East European and US crops have dryness issues that could work against maximum potential. TheEU has also been short-changed on rains in some
south/eastern member states. Nonetheless, there is an overall impression of ‘generally
favourable’ conditions around the main northernhemisphere wheat belt. Indeed, some countries,
especially Australia, Germany, Canada and the
Ukraine, might also expect a bit more luck with
grain quality – i.e. better summer growing/harvest
weather after two years of unusually challengingconditions.
This combination – big crop, huge stocks,bigger sowings, questions why the Chicagofutures complex should be forecasting wheatprices 11.5% higher at the end of 2012 than they are now. Consumers will rightly question the reliability of this futures ‘price revelation’,
given that this time last year, Chicago wheat wasforecasting $8.55/bushel for end-2011 compared
with the actual price with which the year end of
of $6.45¼. Chicago futures ‘price discovery’ was
just as wrong on maize. A year ago it saw a 10%drop in prices over 2011. Despite a 40m tonne
(5%) recovery in world output, values actually
rose 15% amid the US crop shortfall and China’s
return as a major importer. While still on the futures markets, we might
also question why, if maize is the main factor
holding wheat up as most trade analysts accept,
wheat should be forecasting a 17% premium over
the coarse grain by the end of 2012? Shouldn’t itbe the other way around?
As well as the ‘fundamentals’ (supply/demand
issues) above, grain and feed markets continue
to keep an eye on ‘macro-economic factors that
might influence physical demand, speculativeactivity etc. Over the least few months these
factors have been broadly bearish for prices. The
fd milliG tcholoG36 | January - february 2012
Innovations for a better world.
Bühler AG, Grain Processing Customer Service, CH-9240 Uzwil, Switzerland, T +41 71 955 30 40,email@example.com, www.buhlergroup.com
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