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The USDA has revised lower its estimate of 2012-13 wheat ending stocks by a cumulative 15.1mn tonnes from the first estimate in May while of the global stocks of 173mn tonnes, it estimates 45% will be held by two coun..

11 Nov 2012

NEW YORK (Commodity Online): Grains markets have had the past few months to digest the magnitude of corn and soybean supply losses from the US drought, but the much more geographically widespread supply losses in wheat are starting to mount, said Barclays Capital in a snippet.

In Time for wheat to step out of the shadows?, we highlighted why we felt that the downgrades to global wheat production (from a combination of a lower Black Sea crop and our expectation of further cuts to Australian and Argentine production) would underpin prices, and that the relative absence of Black Sea exports would buoy demand from other export origins, the British bank added.

Indeed, wheat prices have been strengthening and we anticipate a further decline in global supply estimates in the November WASDE report. There has been no improvement in dry weather conditions in the US Hard Red Winter Wheat producing areas, with the latest weekly USDA Crop Ratings data showing that the good/excellent ratings for the US winter wheat crop were 39%, down 1% from the prior week and well below year-ago levels of 49%, Barclays continued.

Southern Hemisphere crops are not faring well either. The USDA’s Argentina Attaché downgraded the estimate for the 2012-13 Argentine crop by 10.8mn tonnes (from the October WASDE estimate of 11.5mn tonnes) due to excessive spring rains. The Australian crop meanwhile is likely to decline further, in our view, from the October WASDE estimate of 23mn tonnes, due to dryness in Western Australia, they noted.

Key reason market participants had adopted a rather bearish view on wheat for much of this year has been the seemingly onerous level of global stocks – a legacy of four successive years of hefty production. However, a closer look reveals a more complex picture.

The USDA has revised lower its estimate of 2012-13 wheat ending stocks by a cumulative 15.1mn tonnes from the first estimate in May while of the global stocks of 173mn tonnes, it estimates 45% will be held by two countries: India and China. Chinese wheat imports more than doubled m/m in September; domestic prices are high and China’s stocks will not be exported out.

In the case of India, things are different, as 2012-13 production is estimated at a record high 93.9mn tonnes (a seventh consecutive y/y rise) and a massive build in governmental stocks and a removal in September 2011 of a four-year old export ban should facilitate exports.

However, across key producer-exporter states inventories are down y/y (see Figure 12). Resultantly, the market is becoming cognisant of production downgrades and supply losses in wheat; and we expect ongoing supply downgrades to support prices, with supply tightness focused more on higher protein wheat grades, Barclays concluded.


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