By Ros Krasny
PORTLAND, OR (B)--Large supplies of wheat in the hands of major exporters going into 2000-01 will limit price strength, according to speakers at the PaineWebber world grain seminar here.
Overall global stocks and the world stocks-to-use ratio have taken on a look similar to those seen during the 1995-96 bull market, but the similarities were said to end there.
"Why don't we have $5 wheat?" was a rhetorical question posed in light of the tightening bias to the global market. Or, in the case of the Chicago Board of Trade nearby soft red winter wheat futures market, why don't we have $4 wheat or even $3 wheat?
Bob Riemenschneider, a senior aide with the U.S. Department of Agriculture's Foreign Agriculture Service, noted that "export supplies still overhang the world market," although stocks held by major exporters have fallen somewhat in the past few years.
For the record, world wheat carryout in 2000-01 is forecast by the U.S. Department of Agriculture to be 106.25 million tonnes, down from 125.88 million in 1999-2000 and from 136.59 million a year earlier.
Wheat is "getting into a rather precarious stocks position in some respects," Riemenschneider said. "Stocks-to-use is forecast to be below 18% globally, lower than in 1995-96."
However, inventories held by the United States, the European Union, Argentina, Australia and Canada still are expected to go into the new marketing year at more than 50 million tonnes.
"We still have ample, readily available stocks in the hands of major exporters," Riemenschneider said, "and resultant confidence in a just-in-time delivery mechanism."
In May 1996, the fob price of U.S. hard red winter wheat at the Gulf of Mexico was about $262 per tonne, and USDA expects that price to be near $140 by the end of 2000-01, compared with levels of $120 to $125 for much of the past year.
"The (high) mid-1990s price levels were an aberration," Riemenschneider said. During the past 15 years, fob HRW wheat prices have mostly ranged in the $120 to $175 zone, he said.
Andy Bellingham, analyst with AB Bellingham Commodity Trade Analysis of Reston, VA, said the wheat market was still thirsting for a bullish surprise on the demand side.
Even the prospect of increased imports by China--perhaps in the 3-million- to 5-million-tonne zone in 2000-01--has been amply discussed and is factored into the market at this point, he said.
USDA's current forecast for Chinese wheat imports in 2000-01 is 3.5 million tonnes.
"Buyers are very accustomed to seeing the same or lower prices at every tender," he said. "We all know where the wheat is, and the buyers know where the wheat is."
As a result, complacency on the part of wheat buyers is fairly well engrained and hard to shake, sources said.
"Algeria was taken by surprise recently when it tendered for wheat and actually faced higher prices," Bellingham said.
U.S. wheat stocks for 2000-01 are forecast to fall slightly on the back of lower production and slightly higher exports. However, stocks remain high by historical standards.
More significantly, sources at the meeting noted, the vast majority of those stocks are held in private hands and readily available to the market--a contrast to past years when the U.S. government controlled a significant portion of inventory.
"There are very few government stocks, and exporters globally have large stocks," a commercial trader summarized. "There has to be a drawdown in inventories, starting with the United States, to get prices up."
In 1995-95, U.S. wheat ending stocks were 376 million bushels, of which 258 million were tabbed as "free stocks." For 1999-2000, carryout of 917 million bushels includes 817 million "free stocks." Total stocks are pegged at 809 million for 2000-01; USDA has not forecast so far how much of that will be free stocks.
One wheat analyst at the meeting said that extreme uncertainty about the true state of China's wheat supplies was a significant wildcard.
USDA currently forecasts China's wheat ending stocks at 26.4 million tonnes in 1999-2000, dropping to 18.4 million in 2000-01, but the margin for error on that estimate is wide, the analyst said.
"Nobody really knows what's happening in China," he said.