September USDA Estimates Confirm More Export Demand for U.S. and Canadian Wheat

The United States Department of Agriculture (USDA) sees world wheat stocks for marketing year 2010/11 (June – May) increasing slightly in spite of evidence that production estimates for Russia and much of Europe fell again this month. The September USDA World Agricultural Supply and Demand Estimates (WASDE) report included another jump in U.S. wheat exports from 32.6 million metric tons (1.2 billion bushels) in August to 34 million metric tons (1.25 billion bushels). While the increase is somewhat below what some analysts expected, the new forecast is about 40 percent higher than USDA’s initial 2010/11 export estimate. U.S. wheat exports the past four weeks have generally exceeded trader expectations, including three weeks with sales of more than 1 million metric tons (about 36.7 million bushels). USDA’s forecast of average farmgate prices for wheat also increased slightly to $4.95 to $5.65 per bushel, compared with $4.70 to $5.50 last month.

The report draws its conclusions from more information about the impact of the Russian drought and harvest rains in central and eastern Europe. Production for Russia is lowered 2.5 million tons (about 92 million bushels) based on the latest harvest results for the drought-affected central growing areas on top of the government’s announcement it plans to extend its export ban at least until the 2011/12 Russian crop is harvested. EU-27 production is lowered 2.4 million tons with the largest reductions for Hungary and Romania where heavy summer rains reduced yields and smaller production drops in other member countries. Although the reduction for Germany is small, the report said persistent rain in August reduced high quality milling wheat supplies, which should also increase demand for U.S. and Canadian wheat. USDA’s forecast for higher Canadian wheat exports (up 2 million metric tons) also factors in new information about higher than expected carry-in stocks and production.

USDA projected global wheat production will decline by 2.72 million tonnes to 643.01 million tonnes, an improvement on the average estimate by traders who saw a total harvest of 641.44 million tonnes. The report estimated world wheat stocks-to-use ratio at 26.8 percent, noted by Reuters this morning to be “well above 20.3 percent seen during 2007/08 when food short shortages and record prices sparked unrest globally.”

Wheat stakeholders should also be watching the U.S. corn supply and demand analysis carefully because bullish reports in the current situation could also pull U.S. wheat prices up. USDA’s forecast appeared somewhat more bearish than some analysts expected. USDA predicted lower stocks (1.1 million metric tons or 40 million bushels) based on increased ethanol use and slightly higher exports and a 1.5 percent drop in its production forecast. However, at 334.3 million metric tons, this would still be the largest corn crop ever produced in the United States.