by Agrimoney.com
The deep cut to world wheat stock estimates made in a benchmark report may not be the last, with commentators including Goldman Sachs warning of the potential for downgrades ahead to the Russian harvest.
The US Department of Agriculture, in its flagship monthly Wasde crop report on Thursday, slashed nearly 9m tonnes from its forecast for world wheat stocks at the close of 2013-14.
The cut, which has helped keep Chicago futures on course for a full week of positive sessions, reflected a hike in estimates for livestock feeding in China, whose strong imports in the last month have taken markets by surprise, although following reports of a rain-affected harvest.
And there may be cause yet to cut the world stocks figure further, with concerns that the USDA is overestimating the Russian crop, in pegging it at 54.0m tonnes despite concerns over dryness in the Urals and Volga regions of the country.
Russia's harvest is a sensitive topic for markets, given the country's status as an exporter of large quantities of competitively-priced wheat supplies.
'Further downward revision'
Goldman Sachs analyst Damien Courvalin said that there was "potential for further downward revision" in the USDA stocks estimate, "as the USDA's Russian wheat production forecast remains elevated".
Indeed, Mr Courvalin said that the prospect of "low" wheat stocks will "limit price downside" for wheat, meaning Chicago futures "will remain trading at a large premium over Chicago corn prices in the second half of 2013."
The bank stuck by forecasts of Chicago corn prices falling to $4.75 a bushel on three-month, six-month and 12-month horizons, with wheat futures trading at $6.50 a bushel over the same timescales, implying a premium of $1.75 a bushel.
Corn prices look set for a decline despite the current concerns over hot weather in the US, with Goldman saying that "it would require a significantly larger deterioration in weather conditions to limit the rebound in US supplies".
'Russian roller coaster'
Rabobank also flagged that "significant global production risks still exist", flagging the potential yet for weather upsets to output in the former Soviet Union and in Australia – whose crop the USDA upgraded despite concerns over dryness in Western Australia, the country's top grains state.
US Wheat Associates, which promotes US wheat exports, flagging the "roller coaster" of Russia's wheat production record, flagged crop forecasts from domestic commentators well below the USDA's 54.0m tonne number.
"While Russian production certainly will be better than last year, persistent dry weather throughout the spring and into the summer harvest season has again resulted in lower than expected yields of new crop wheat," the group said.
SovEcon cut its forecast range by 1.0m tonnes to 59.5m-51.5m tonnes, with Ikar reducing its estimate by 3% to 52.4m tonnes.
Russia's agriculture minister, Nikolai Fyodorov, appeared on Tuesday to acknowledge the potential for a downgrade from the ministry's own 54.0m-tonne guidance by saying that the harvest would come in at no less than 50m tonnes.
'Optimistic forecast'
Agritel, the Paris-based consultancy with a Ukraine office, said that its own forecast was for a 51.3m-tonne crop, terming the USDA forecast "optimistic", given the "water deficit" in the Urals and Volga areas.
"Russian exports are still estimated at 17m tonnes, which appears in the eyes of local observers to be far too ambitious," Agritel said.
The consultancy also flagged another potential cause for a cut in wheat supplies, with Russia's inventories at the start of 2013-14 potentially far lower than the USDA estimate of 5.3m tonnes, depleted by resilient exports last season after a drought-reduced harvest.
"These stocks may be closer to 3m tonnes. A corrected estimation of the situation in Russia is expected in the next monthly USDA report."
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