Morton Sosland: Marked change in U.S. wheat exports boosting prices
Wheat futures rising in the past week to the highest levels in more than a year makes the sort of market move that may be called inexplicable. After all, soaring wheat seems to make scant sense in relation to the official forecast that the carryover at the end of 2010-11 will exceed a billion bushels. This is a total last seen more than two decades ago, at the close of 1987-88. Having ending stocks more than three times holdings at the end of 2007-08, a time of record prices, would appear to point to little concern about supply adequacy.
In a reminder of the central role the Former Soviet Union played in the price explosion of the early 1970s, much of the impetus for current strength stems from depleted crops in Russia and neighboring states. Extreme dryness has decimated the region’s crops. The immediate result is a dramatic cutback in export offers from countries that previously had been sharp competitors, even to the point of aspiring to become trade leaders. When combined with outturn shortfalls in other exporting nations like Canada and Turkey, the possibility of a surge in demand for U.S. wheat appears reasonable.
The most recent U.S.D.A. estimates point to a rise of more than 100 million bus in the carryover this season. Yet, that very prospect could be dramatically reversed to a stock cut if wheat exports in 2010-11 reach the 1,262 million bus of 2007-08 instead of the most recent official forecast of 1 billion. That seems less of an unlikely change in light of the market’s behavior.