As projected U.S. wheat ending stocks and Australian wheat production both plunge lower, U.S. wheat prices appear poised to test old highs approaching $10 a bushel, according to market analysts speaking at Midwest press briefings on USDA's Oct. 12 U.S. crop production report and world supply and demand estimates.
“USDA finally cut the Australian wheat production number to about 13.5 million tons (from 21 million tons last month),” noted Brian Hoops, market analyst with Midwest Market Solutions, speaking at a Minneapolis Grain Exchange press briefing.
“That's a very aggressive cut from USDA and it is in line with expectations of a total crop of 10 million tons to 15 million tons. We should know more about their crop as they began harvesting over the next 30 days.”
Drought and heat continued to plague the Aussie crop through early October, leaving crops with little moisture through the critical reproductive stages. Global wheat production for 2007-08 was projected 5.8 million tons lower than last month, primarily on USDA's assessment of reductions in Australia.
USDA estimated U.S. wheat ending stocks for 2007-08 at 307 million bushels, which is down 55 million bushels from last month, and the lowest since 1948-49.
USDA also lowered its estimated U.S. wheat production by 47 million bushels from last month and raised exports by 50 million bushels, reflecting tighter world supplies and the strong pace of U.S. shipments and sales to date.
With continuing strong demand for wheat, “We're going to see some more rationing and maybe another run at the old highs, depending on how good or bad this Australian wheat crop is,” Hoops said.
At a press briefing hosted by the CME Group held at the Chicago Board of Trade, Jack Scoville, an analyst for the Price Futures Group, noted, “Having wheat ending stocks projections at close to 300 million bushels implies we're still in a very tight situation here in the United States and the world numbers are also pretty tight.
“It underscores the fact that we need to get our wheat crop planted, and hopefully in the next year, we'll grow more wheat to start rebuilding supplies. For now, it implies wheat prices should continue to hold the highs.”
The U.S. corn crop is forecast at a record 13.318 billion bushels, up 10 million bushels from the September report, while ending stocks of corn for 2007-08 were raised 322 million bushels, to 1.19 billion bushels, the highest since 2005.
Feed and residual use was lowered 150 million bushels, and corn use for ethanol in 2007-08 was lowered 100 million bushels, reflecting lower production and lower returns for ethanol producers. Hoops added a word of encouragement, however. “Over time, the trade would expect ethanol use to continue to expand rather than contract.”
Average estimated corn yields were lower than last month — 154.7 bushels to 155.8 bushels, Hoops noted. “However, while yield went down, USDA did find more harvested acres than what we anticipated.”
Corn exports are projected 100 million bushels higher. At a projected 2.35 billion bushels for 2007-08, exports would be the highest in 18 years. Sorghum ending stocks for 2007-08 are also down from last month. Exports were raised 40 million bushels, but projected domestic sorghum use is down.
U.S. soybean production was forecast 21 million bushels lower to 2.598 billion bushels. Soybean ending stocks are projected at 215 million bushels, the tightest since 2003. “We also had lower harvested acres from last month by about 500,000 acres, likely due to abandonment in the South due to poor yields,” Hoops said.
There will be “a big fight for acres in 2008, according to James Barnett, grain and soybean analyst for MF Global, speaking at the CME briefing.
“First, in South America, we need to get that planting in in Brazil and Argentina. USDA did raise the size of the Brazilian crop by 1 million tons, so it implies that they think there will be a slight increase in acres; that this rally has bought few acres down in Brazil. We're looking for a 5 percent to 8 percent increase ourselves.”
Soybean cash prices reported in Brazil are 40 percent above year-earlier levels after adjusting for stronger currency values.
Estimated U.S. cotton production was raised 2 percent to 18.2 million bales, due mainly to higher estimated production in Texas. World cotton production in 2007-08 was raised nearly 3 percent, including increases for China, the United States, and Brazil. Forecast world consumption is 1.3 percent higher, as China's consumption for 2007-08 was raised 1.5 million bales to 55 million bales based on the revisions from China's National Development and Reform Commission.