Agricultural News
Steady Growth in World Wheat Markets Will Gradually Erode Global Wheat Stocks
Tue, 14 Dec 2010 11:39:30 CST
Kansas State University Extension Grain Marketing Economist Dr. Dan O'Brien says that there were no big surprises for the US wheat industry from this past week's Supply Demand data released by the US Department of Agriculture. O'Brien has reviewed the data and offers the following analysis as we head into the final days of calendar year 2010.
"After the panic in World wheat markets over Black Sea and European production problems that lasted throughout July and into early August 2010, wheat futures prices had remained volatile but have generally moved in a sideways direction, with January 2011 KCBT wheat futures trading within a range of closing prices between $6.97 ¼ on October 4th to $8.11 on November 8th. After closing at $7.05 ¾ on November 16th, JAN 2011 KCBT wheat began climbing higher, including a $0.48 ½ "jump" from the November 30th close to the December 1st opening price or $7.96 /bu.. Driven by foreign wheat harvest and quality problems and continued dry conditions in U.S. winter wheat production areas, on December 3rd JAN 2011 KCBT wheat closed at $8.22 (higher than the $8.11 high price since August 2010), and continued higher to $8.43 ¾ on December 9th. The December 10th close for JAN 2011 KCBT wheat was at $8.32 /bu.
"These volatile market conditions indicate World wheat supply-demand uncertainty for both the remainder of MY 2010/11 as well as for wheat production and supply prospects in MY 2011/12. Although World wheat ending stocks for MY 2010/11 are projected at levels markedly above historic 30 year lows experienced MY 2007/08, concerns about tightening supplies of food quality wheat as well as the adequacy of moisture in a number of critical World wheat production areas. Strong U.S. wheat export shipments to date in MY 2010/11 are reflective of and resulting from these market concerns about having adequate wheat supplies.
"In most aspects, market prospects for 2011 have not changed appreciably since November, except for the significant wet harvest and wheat quality problems that are occurring in Australia and the emerging understanding of scope of wheat quality problems with the 2010 Canadian crop.
Although MY 2010/11 World wheat stocks are not projected to be as tight as in MY 2007/08, the World wheat market is likely to continue to find support in 2011 from the following factors:
a) Australian and Canadian wheat quality problems in 2010
b) Export limits from Black Sea countries
c) Dry soils and the increased possibility of 2011 winter wheat production problems in the U.S., Russia, and other selected major wheat exporters
d) Continued steady growth in World wheat usage
e) The current availability of sizable, reasonable quality U.S. wheat stocks to help meet World export demand
"Until, or rather, unless World wheat production markedly expands to meet or surpass increasing wheat usage in the next 1-2 years or more, World wheat ending stocks are likely to remain tight, with wheat market prices remaining at historically high levels. However, an appreciable threat of significant World wheat production problems in 2011 that could lower World wheat stocks ever further (closer to level of the 30 year lows in MY 2007/08) would likely lead to extremely volatile and high wheat market prices, and widespread concerns about the adequacy of World wheat / food supplies by various governmental agencies, advocacy groups, and the U.S. public. With quality problems in key areas (Australia and Canada), more non-food quality wheat will compete with feedgrains for livestock feed use in MY 2010/11."
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