WASDE: Bearish Wheat Outlook Largely Unchanged

September 11, 2009 Bookmark and Share

From U.S. Wheat Associates

The latest edition of USDA’s World Agricultural Supply and Demand Estimates (WASDE) report, released Friday, sees few upside factors that might affect wheat prices but also sees no major downside surprise, due in large part to an abundance of wheat on the world market.

For example, the U.S. wheat export prediction is unchanged from the August report, which slightly raised the export forecast to 950 million bushels (25.9 million metric tons or MMT) for the 2009/10 marketing year that started June 1 compared to 1.015 billion bushels (27.6 MMT) the previous marketing year.

A 20-cent drop in the expected range of farm gate prices won’t shock U.S. wheat growers, many of whom have chosen to hold on to their wheat because prices are so low.

The world’s wheat growers responded to high-price market signals back in late 2007 and early 2008, resulting in an all-time record crop for 2008/09 and the second largest ever for 2009/10, for which USDA just raised its forecast by more than 162 million bushels (4.4 MMT). This abundant supply has exceeded world use two years in a row and significantly increased price competition in the wheat market.

U.S. exports are down compared to last year at this time, but at the current pace exports are in line to end the year within USDA’s forecast, which, if achieved, would be more than the U.S. exported in 2006/07. In fact, at 33 percent of USDA’s forecast for the year, this year’s pace is closer to long-term averages than last year, and export movement has picked up in recent weeks.

The U.S. wheat industry remains the world’s largest and most reliable wheat exporter. For example, USDA noted this month that Argentina’s crop should be smaller than expected. That will reduce competition for U.S. wheat, especially in the Western Hemisphere. USDA also raised global consumption slightly by 33 million bushels (898,000 metric tons) because of increased wheat feeding as well as food and industrial use.

“Looking ahead,” says U.S. Wheat Associates President Alan Tracy, “we see U.S. wheat exports picking up as buyers begin responding to very low prices, coupled with a weak dollar that helps make supplies of all our classes more competitive in more markets around the world.”

Tracy adds that there are really only a few sources of high-protein wheat in the world, including Australia, Canada, Germany and the U.S., which supplies both hard red winter and hard red spring. Right now, there is a limited supply of high-protein wheat available, and other than modest amounts from Australia, there won’t be any more of it produced until July 2010.

“From what we’ve heard, domestic millers are very excited about the current U.S. wheat crop,” Tracy says. “We are working together with the entire supply chain to make sure overseas buyers also understand that this is a rare opportunity to lock in future supplies at prices we think can’t last for long.”

The full September WASDE report is at http://www.usda.gov/oce/commodity/wasde/