December 17, 2012
The US Department of Agriculture (USDA) World Agricultural Supply and Demand Estimates (WASDE) report has caused a sharp dip in wheat values. Cash wheat prices came back by as much as $6/t yesterday on Wednesday and Australian futures are back $11/t, while Chicago Board of Trade (CBOT) Dec 12 futures have lost US43 cents a bushel over the two sessions since the USDA report came out, falling to a contract low of US805c/bu. The December WASDE report generally throws up few surprises, and it was a similar story again this year, according to analysts, however the few curveballs it did throw up were all bearish for wheat values. Firstly, there were large upward revisions to US and world wheat ending stocks for the 2012/13 season on the back of lower than expected exports. There was also a significant rise in world production of 3.7mt, on the back of lifts in Australian and Canadian production, with the USDA pegging the Aussie crop at 22mt, in line with Aussie forecaster ABARES. This raises world wheat stocks to a relatively comfortable 177mt, or a stocks to use ratio of 26.3pc. “It’s relatively bearish for wheat, it doesn’t have as many friends as corn or beans, and the balance sheet shows there are still alternative supplies to US wheat in the market,” said Emerald Group’s general manager of risk and pricing David Johnson. “Other origins still have wheat to sell and are continuing to do so at the expense of US exports. “Our advice is that growers shouldn’t panic, but continue to pick off prices over the next three months.” The news in the medium term is not all bad for wheat producers, however. Some analysts suggest every bit of the increased wheat carryout would be needed, should the condition of the US winter wheat crop not improve. Currently there are reports of low snow cover levels and drought concerns in the critical US Great Plains region. Mr Johnson sad weather concerns would be critical in maintaining current pricing levels into 2013. “Prices are at high historical levels, and demand is the major driver of price until 2013 northern hemisphere weather issues emerge.” Rabobank analyst Luke Chandler said he believed there would be sufficient demand for wheat to keep prices from falling too far in the near future. He also said farmers needed to keep an eye on the South American summer crops, with the South American corn crop having a lag impact on wheat values.