An analysis of U.S. and World Wheat supply-demand factors and price prospects has been placed up on the KSU AgManager website (http://www.agmanager.info/default.asp).
Following is a summary – with the full analysis-article for Wheat to be found here.
In its September 12th Crop Production and World Supply and Demand Estimates (WASDE) reports, only minor changes were made in its projected U.S. wheat supply-demand balances and prices, but a number of important adjustments in its World wheat supply-demand outlook. These reports reinforce previous forecasts in which the USDA projected larger U.S. wheat supply-demand balances for the new crop marketing year, but also predicted sizable reductions in foreign wheat production, trade prospects, and ending stocks. World wheat supply-demand balances are projected to continue the three year “tightening trend” in place since MY 2009/10.
Tight World feedgrain and oilseed supply-demand balances continue to provide cross market support for record high wheat markets – “incentivizing” the feeding of wheat to livestock in the U.S. and especially abroad. That said, foreign wheat production problems have become serious enough that the attention of the wheat market is turning “inward” to its own supply-demand challenges, providing “internal” support for prices.
U.S. Wheat Market Prospects
For “new crop” MY 2012/13, the USDA made no changes in its projection of 2012 U.S. wheat production of 2.268 billion bushels (bb), up from 1.999 bb in 2011 and 2.207 bb in 2010. With higher imports (130 million bushels or “mb” – up 18 mb vs a year ago), higher exports (1.200 bb – up 150 mb), higher food use (950 mb – up 9 mb) and higher feed & residual use (220 mb, up 20 mb), U.S. wheat ending stocks were projected to be 698 mb vs 743 mb in “old crop” MY 2011/12 and 862 mb in MY 2010/11. Ending stocks-to-use are projected to be 28.6% in MY 2012/13 – down from 33.3% and 35.7% the last two years. U.S. farm average wheat prices are projected to be in the range of $7.50-$8.70 per bushel for “new crop” MY 2012/13 – a record high. This compares to the previous record of $7.24 for “old crop” MY 2011/12 and $5.70 in MY 2010/11. By comparison, U.S. corn prices for MY 2012/13 are projected in the range of $7.20-$8.60/bu.
World Wheat Market Prospects for MY 2012/13
Based on projections of 1) lower production (659 mmt, down 5.2% vs last year), 2) lower total supplies (857 mmt, down 4.0%), 3) lower total use (681 mmt, down 2.0%), and 4) lower export trade (135 mmt, down 12.8%) the USDA projected World wheat ending stocks to be 177 mmt (26.0% S/U) for “new crop” MY 2012/13. This is down from 199 mmt (28.6% S/U) in “old crop” MY 2011/12, and is comparable to 30.2%, 30.8%, and 26.4% in the three previous years. Historic lows of 128 mmt ending stocks and 20.9% S/U occurred in MY 2007/08.
Key Wheat Market Factors Going Forward
Wheat production problems in Russia, Kazakhstan, Ukraine, Australia and parts of eastern Europe have led to tighter World wheat supply-demand prospects and an improved outlook for U.S. and Canadian wheat exports in “new crop” MY 2012/13.
Prospects are for increased wheat feeding in the U.S., but even more so in foreign countries that would otherwise use more feedgrains in their livestock feed rations. As was the case a month ago, it is still likely that World wheat supply-demand balances will remain large enough in “new crop” MY 2012/13 to avoid extreme shortfalls and tightening of World wheat supplies such as occurred in MY 2007/08.
That said, even with the uncertainty that exists in regards to wheat market supply-demand, systematic risks in commodity/energy and financial markets and the overall U.S./World economy may be the biggest threat to wheat market prices for the remainder of 2012 and on into 2013.