USDA issued a bearish outlook for wheat in its World Agricultural Supply and Demand Estimates (WASDE) for December. A quick look at the new 2011/2012 forecasts tell the story:
Global wheat production up to a record 689 million metric tons (MMT) due to higher production in Australia, Argentina and Canada.
Global wheat supplies up 9.3 MMT to 889 MMT with improving production estimates in the southern hemisphere.
Global wheat ending stocks up 5.9 MMT to 209 MMT, the largest in 12 years.
Larger world supplies of wheat and competitive prices relative to corn boosted prospects for 2011/2012 world wheat trade, USDA said. Its trade forecast is up 1.4 MMT, anticipating that Asian countries and Mexico will import more wheat for feed. ABARES, the Australian Bureau of Agricultural and Resource Economics and Sciences, recently reported it expects relatively low wheat protein levels this year. While USDA did not cite that specifically, it did increase its Australian and Argentine export forecast based on increased feed wheat demand.
It also lowered U.S. export forecasts for hard red winter (HRW), soft red winter (SRW) and white wheat by 1.36 MMT. U.S. grain handlers told U.S. Wheat Associates (USW) the white wheat export reduction surprised them because the soft white (SW) sales pace remains strong.
Export forecasts for U.S. hard red spring (HRS) and durum did not change this month. In fact, MGEX HRS futures prices for December, March and May closed up a bit along with March and May KCBOT HRW futures on the day USDA issued the December WASDE.
The fact remains that the United States is still the world's main supplier of high quality milling wheat. Protein levels in the 2011/12 HRW and HRS crop are much higher than last year, with a significant portion of U.S. HRS supply still in storage on the farm or in the local elevators (reflected in current FOB prices).
USW Vice President for Overseas Operations Vince Peterson recently told buyers in Latin America that falling prices create an opportunity for buyers to lock in the best value for higher quality U.S. wheat classes they have seen in a long time. Speaking to Reuters this week, USW Regional Vice President for the Middle East, North and East Africa Dick Prior noted that U.S. wheat prices are becoming more competitive with other origins.
However, the downward price trend may not be sustainable for long. USDA/Foreign Agricultural Service Director of Policy Analysis Michael Dwyer's current analysis of longer-term market factors point to continued historically high agricultural commodity prices. Dwyer recently discussed his analysis with online publication Agri-Pulse. To hear the interview, visit http://www.agri-pulse.com/Audio-Open-Mic.asp.
The full December WASDE is available at http://www.usda.gov/oce/commodity/wasde/.