Wheat prices fall after US lifts hopes for stocks

by Agrimoney.com

Grain prices fell on both sides of the Atlantic after US officials unexpectedly raised their estimates for world stocks of major agricultural commodities.

Investors had expected the US Department of Agriculture, in its much-watched Wasde report, to upgrade its forecast for global soybean inventories at the end of 2010-11, thanks to better prospects for Brazil's crop, the world's second biggest.

And, indeed, the USDA lifted its estimate for the Brazilian soybean harvest by 1.5m tonnes to a record 70.0m tonnes, reflecting "higher projected yields".

The revision, after some adjustments for last crop year too, fed through to a 120,000-tonne lift in the estimate for global soybean stocks, slightly less than the market had prepared for.

Prices tumble

However, USDA increases to forecasts for world corn and, in particular, wheat inventories came contrary to expectations.

Thursday's closing prices Chicago wheat, May contract: $7.40 ½ a bushel, (-2.4%) Chicago corn, May contract: $6.82 ¾ a bushel, (-2.6%) Kansas wheat, May contract: $8.37 a bushel, (-1.9%) Paris wheat, May contract: E226.25 a tonne, (-2.5%) London wheat, May contract: £187.50 a tonne, (-2.2%)

"The global wheat numbers will be considered bearish by the wheat market," Macquarie Securities said, adding that the data were likely to "induce even further speculative selling pressure in the short-term" for a grain already down 12% since mid-February.

And investors' reaction was to send grain prices lower.

Paris wheat for May at one stage fell more than 5% to a three-month low of E220.00 a tonne, with Chicago wheat too recording its lowest prices since early December.

Chicago corn for May closed down 2.6%.

'Demand trimmed'

The forecast of higher wheat stocks reflected in part higher forecasts for crops in Argentina and Australia, the main southern hemisphere producers, which enjoyed bumper harvests.

Key Wasde estimates, change on Feb and (on market expectations) US wheat exports: 1.28bn bushels, -250m bushels, (n/a) US wheat year-end stocks: 843m bushels, +25m bushels, (+33m bushels) Global wheat year-end stocks: 181.9m tonnes, +4.13m tonnes, (+4.33m tonnes) Global corn year-end stocks: 123.1m tonnes, +630,000 tonnes, (+1.51m tonnes)

Australia's crop was estimated at a seven-year high 26.0m tonnes, thanks to better-than-expected yields in Western Australia, usually the country's top cereals growing state, "where wheat quality was not hurt by harvest rains as in the east", albeit being hit on quantity by drought.

However, the USDA also noted signs of rationing by users in response to prices which last month hit two-year highs in Chicago and Paris, and record highs in London.

The report flagged "reduced import prospects for a number of smaller markets as high prices trim demand". The estimate for Russian consumption was downgraded by 1.5m tonnes, thanks to a "reduction in expected wheat feeding".

Forecasts for wheat exports by both the US and European Union, the two biggest shippers, were downgraded.

Safrinha question

For corn, the USDA stuck by forecasts for domestic supply and demand.

However, it raised its forecast for world corn stocks, reflecting "high reported area and yields" for Brazil's summer crop, and prospects for the winter crop currently being sown.

The Wasde, raising by 2.0m tonnes to 53.0m tonnes the estimate for Brazil's corn production, highlighted "expectations for increased area for the winter crop, with government planting dates extended for crop insurance and loan programmes".

However, the observation is at odds with that of many private analysts who have warned of a knock-on effect on sowings of winter, or safrinha, corn from rain delays to the soybean harvest, which has kept land tied up.

Indeed, the Brazilian concessions on planting windows were implemented because of the extent of the delays.

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