U.S. wheat demand may not be as weak as some consider
By Casey Chumrau
USW Market Analyst
In its World Agricultural Supply and Demand Estimates released Dec. 13, the U.S. Department of Agriculture surprised many analysts by lowering the 2012/2013 U.S. wheat export forecast from 29.9 million metric tons to 28.6 MMT, equal to 2011/2012 exports. Based on the current level of total U.S. wheat sales, it is understandable why USDA would make such a move. However, there are many factors that suggest the United States could further increase the pace of sales in the second half of the marketing year.
As of Dec. 13, total known outstanding sales and accumulated exports were 17.7 MMT, 7 percent lower than last year's year-to-date total. However, commercial sales at the end of June were 21 percent off last year's pace. A very strong August and a solid end to the calendar year helped lagging sales narrow the gap with the prior year's mark.
Competitive prices will help to drive the pace of sales in the second half of 2012/2013. Since September, U.S. prices have remained relatively stable while competitor prices rose. As of Dec. 2, U.S. soft red winter and white wheat are less expensive than wheat from any other major exporter and major customers have noticed. In the month of December, Egypt has purchased 473,000 MT of U.S. wheat, compared to just 150,000 MT earlier in the marketing year and nearly tripling the 2011/2012 sales-to-date of 246,700 MT. Tender results announced recently showed Egypt purchased SRW at FOB $335 per MT, which is about $20 below Russian milling wheat. This is a strong reversal from early August when Russian wheat prices were about $30 per MT less than SRW.
In addition, the United States has an ample supply of high-quality wheat, unlike many competitors. U.S. production increased 13 percent in 2012/2013 to 61.8 MMT, the highest mark since 2008/2009. Unfavorable weather resulted in less fortunate harvests for other major wheat producers. Aside from Canada, which increased production by 8 percent, production in all the traditional wheat producers and the Black Sea countries declined in 2012/2013. As a result, several suppliers have discussed limiting exports. Ukraine has publicly vacillated on the topic and Russia has indicated it will consider limits in 2013. This week, the Argentine government announced that it will allow 4.0 MMT of wheat exports for the marketing year, a 27 percent reduction from its original plan to permit exports of 5.5 MMT.
Poor weather conditions not only lowered production levels but also affected the crop quality around the world. Harvest reports this week from Australia, for example, indicate lower-than-expected protein levels from the premier wheat growing region in the east and a 26 percent decline in production for the year. Fortunately, the United States added to its consistent supply of high protein wheat in 2012/2013 thanks to a harvest with above average protein levels for hard red winter and hard red spring wheat.
Futures prices have trended down in the last few weeks, which could make U.S. wheat even more competitive. However, the series of bullish factors outlined here complicate the current marketplace. Knowledgeable U.S. Wheat Associates representatives across the world are available to help customers navigate the market, manage risk and capitalize on excellent opportunities to purchase high-quality U.S. wheat.