by Agrimoney.com
Wheat prices extended gains after the US slashed its estimate for world stocks to a five-year low, citing raised expectations for use in China, whose imports will soar to an 18-year high.
The US Department of Agriculture, in its much-watched Wasde crop report, cut by nearly 9m tonnes to 172.4m tonnes its forecast for world wheat inventories at the close of 2013-14.
The revision, which was far bigger than the downgrade of a little under 1m tonnes that investors had expected, put inventories on course for their lowest finish in five years.
As compared with consumption, stocks will end the season at 24.7%, the lowest since 2007-08, the year that tight inventories of wheat and other cereals sent prices soaring to record highs, which still stand in US markets.
The immediate market impacted was to send wheat for September up 2.1% to $6.93 a bushel in Chicago, taking above 6% the lot's recovery from a contract low last week.
Chinese needs
The USDA lifted its estimate for world wheat production in 2013-14, citing improved prospects for Australia, where "conditions significantly improved with abundant June rainfall", and in the US itself, for which yield prospects were raised, for both hard and soft red winter wheat, and for spring wheat.
However, the upgrade was more than offset by an estimate that China was using far more wheat than had been thought in feeding livestock, in the face of elevated corn prices.
The USDA hiked its forecast for Chinese wheat feeding in both 2012-13 and 2013-14 by 5.0m tonnes to 25.0m tonnes.
Even though the department kept its estimate of the domestic crop steady at 121.0m tonnes, ignoring the advice of its Beijing bureau to cut the production figure, it hiked its estimate for Chinese wheat imports by 5.0m tonnes to 8.5m tonnes to cover some of the extra consumption needs.
US export hopes
The upgrade put Chinese wheat imports on course to hit their highest since 1995-96, and far exceeded a separate forecast on Thursday by China's own CNGOIC bureau of purchases of 5.0m tonnes this season.
However, expectations of elevated import needs gained credence through a separate report on Thursday, on weekly US exports, which showed China buying 1.03m tonnes of US wheat last week.
Factoring in 174,800 tonnes of cancellations, China has bought 2.85m tonnes of wheat from the US alone with the season only some six weeks old, and with other purchases reported from Australia and France too.
Indeed, the USDA cut its estimate for US wheat stocks at the close of this season, by 2.25m tonnes (83m bushels) despite the harvest upgrade, citing improved export hopes, "reflecting strong sales, particularly to China".
'Supportive to prices'
The USDA's revision followed a cut earlier on Thursday by the United Nations food agency, the Food and Agriculture Organization, to its estimate for world wheat stocks at the close of 2013-14, by 3.6m tonnes to 169.5m tonnes.
While the FAO raised its estimate for world production to a record 704.0m tonnes, it said that the stocks figure had been "lowered somewhat, mostly on anticipated consumption".
However, Steve Kahler, chief operating officer at Teucrium Trading, a New York-based issuer of commodity exchange traded products, warned investors against getting too carried away by ideas of reduced wheat supplies.
The USDA downgrade was "supportive to prices, but not completely bullish", he said.
"Wheat still has to price itself into feed rations, which means being competitive against other grains," Mr Kahler told Agrimoney.com.
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