Midfield

Australia - Everyone manipulating the grain market

21 Sep 2012

Australia cut its forecast this week for the coming harvest, saying rainfall is needed soon to prevent further declines.
 
 
 
Russia's harvest also suffered from heat stress, and the country could stop exporting by November, according to the agriculture ministry. In India, which has emerged as a major exporter, there are concerns a weak monsoon season will undercut conditions for planting next month.

 

On Wednesday, the U.S. Department of Agriculture lowered its estimate of global wheat production, forecasting a 5.2% decline in 2012-13. The USDA also cut its forecast for U.S. corn and soybean production amid the U.S. drought, although by less than many analysts had expected.

 

The weather troubles, if they continue, risk pushing wheat back to the fore of global concerns about soaring food prices. Wheat is a staple food around the world and a major source of basic nutrition for the poor, and prior price spikes in recent years contributed to political unrest.

 

For now, global supplies remain relatively plentiful, easing the concern in the near term. Stockpiles around the world are projected to decline somewhat this season, according to USDA figures, but remain above the levels they fell to late last decade.

 

But wheat prices have jumped 35% on the Chicago Board of Trade since the end of May, before drought gripped the Farm Belt. Corn prices have risen 39% over the same period. Wheat can substitute for corn as livestock feed, so prices often move in tandem.

 

On Wednesday, however, they diverged, with the front-month wheat contract for September delivery rising seven cents, or 0.8%, to $8.67 a bushel, while corn dropped 11.25 cents, or 1.4%, to $7.71, reflecting investor surprise that the USDA didn't cut its production forecasts even more.

 

Wheat prices could hit $9.30 to $9.50 in the months leading up to next year's U.S. harvest in late spring, even without further damage to the Australian crop, said Don Roose, president of U.S. Commodities Inc., a commodities broker in West Des Moines, Iowa. If heat cuts Australian production further, he said, prices could top $10 a bushel.

 

"The gun is loaded, if the wrong thing happens," he said.

 

In Australia, which is expected to provide 16% of the world's wheat exports, it is crunchtime. The crop is entering a crucial growing stage leading up to the harvest starting next month. "The next three weeks are critical," said Andrew Young, managing director at Plum Grove Pty. Ltd., a wheat-exporter in Fremantle, Australia.

 

The Australian government said Tuesday that the country will produce 22.5 million metric tons of wheat this season, down 7% from its previous forecast and a drop of 24% from last year. The USDA on Wednesday left its forecast for Australian production unchanged, at 26 million metric tons.

 

In the U.S., wheat farmers are deciding whether to plant in soil left parched by the drought. If they hold off in hope of rain, they risk sowing too late.
 
 
 
David Schemm, who grows wheat on 6,000 acres around Sharon Springs, Kan., said ground should be moist within 2 inches of the surface but is now dry down 4 to 6 inches. "We need moisture," said Mr. Schemm, who also is president of the Kansas Association of Wheat Growers.

 

As concerns mount about the impact of dry weather, wheat prices have begun rising faster than corn prices. A bushel of wheat cost 96 cents more than a bushel of corn on Wednesday, up from a premium of 53 cents in mid-August.

 

Hedge funds, pension funds and other noncommercial investors have ramped up bets on rising wheat prices to the highest level on record, as of Sept. 4, according to Commodity Futures Trading Commission data back to 2006. They also have cut bets that prices will fall by more than half since mid-May.

 

Indian officials said they plan to keep exporting wheat to world markets. Food Minister K.V. Thomas said Tuesday that there are no planned restrictions on shipments despite the weak monsoon season. India lifted a ban on wheat exports in September last year after government warehouses ran out of storage space following two successive bumper crops of wheat and rice.

 

Russia's production this year is sharply lower. The latest government forecast is for between 40 million and 42 million metric tons, down from 56.2 million last year.
 
 
 
The USDA lowered its forecast for Russia to 39 million metric tons on Wednesday. Wheat prices soared in 2010, after Russia banned wheat exports, putting pressure on the budgets of Middle East governments that are major wheat importers in the months before the Arab Spring protests...

 

more, including chart


 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 

Source: Argentine Beef Packers S.A.

Marel

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