Wheat prices should weaken into the fall months, unless…

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KANSAS CITY — Wheat futures prices may, and probably will, decline in the next several weeks, given the prospects for a record corn crop, according to veteran crop analysts. But they cautioned there was underlying support for the wheat market derived from strong world demand and record consumption as well as upside price risk in the event of a weather threat to the fall crops. Flour buyers will have to track fall developments closely.

The U.S. Department of Agriculture on Aug. 12 issued revisions to its 2013-14 forecasts for U.S. and world wheat supply and demand. The U.S.D.A. tightened its forecast for the U.S. wheat carryover on June 1, 2014, by 25 million bus compared with the July outlook because of stronger-than-expected export demand, but the more important adjustments were registered in the world wheat supply-and-demand outlook.

The U.S.D.A. forecast world wheat production in the current year at a record 705.38 million tonnes, up 7.58 million tonnes from the July forecast and up 50.11 million tonnes, or 8%, from 655.27 million tonnes in 2012-13. The current record-large world wheat crop of 697.16 million tonnes was harvested in 2011-12.

Given the continuing growth in the world’s population, record wheat crops should not at all be unusual, but the first world crop to surpass 700 million tonnes nevertheless was bound to be viewed as a milestone. World wheat production first surpassed 600 million tonnes in 1997-98 and 500 million tonnes in 1984-85.

With the U.S. wheat production forecast only narrowly above the July projection, the hike in the world wheat production projection was tied to larger crops in other wheat-exporting countries, including Kazakhstan, Ukraine, the European Union and Canada.

The U.S.D.A. forecast world wheat exports in 2013-14 at 154.01 million tonnes, up 4.88 million tonnes from the July projection and up 11% from 138.71 million tonnes in 2012-13. International trade in wheat still would fall below the record set in 2011-12 at 157.83 million tonnes.

Of particular note, the U.S.D.A. raised its forecast for China’s wheat imports in 2013-14 to 9.5 million tonnes from 8.5 million tonnes as the previous projection and compared with 2.96 million tonnes in 2012-13. China’s wheat imports were forecast to be the highest since 1995-96.

World wheat consumption in 2013-14 was forecast at a record 706.81 million tonnes, up 6.92 million tonnes from the July projection and up 4% from 680.42 million tonnes in 2012-13.

World wheat ending stocks in 2013-14 were forecast at 172.99 million tonnes, up 0.61 million tonnes from the July outlook but down 1.43 million tonnes from 174.42 million tonnes in 2012-13.

Paul Meyers, vice-president, commodity analysis, Foresight Commodity Services, Inc., Stephenson, Va., noted, “It’s not often in any of the agricultural commodities that you have record world production but are not able to add to the carryover. That’s the underlying bullishness in the wheat market. It doesn’t’ mean prices can’t go lower, but it does suggest if we do run into some production problems in the Southern Hemisphere or as we get into 2014, this tremendous consumption base may magnify the price response.”

Mr. Meyers also pointed to the unexpected large demand for wheat from China.

“China has bought a significant amount of U.S. soft red winter wheat and about 1.5 million tonnes of wheat from Australia,” he said. “If the U.S.D.A. numbers are correct, China still has a lot of buying left to do.”

He said it was quite a change in world wheat markets as China hasn’t been a major importer in several years.

The U.S.D.A. forecast wheat production in the United States in 2013 at 2,114,085,000 bus, up 442,000 bus from the July projection but down 155,032,000 bus, or 7%, from 2,269,117,000 bus in 2012. While the estimate of the hard winter wheat crop at 791 million bus was down slightly from the month before, the estimate for the soft red winter wheat crop, at 542 million bus, was up 1% from July. The forecast for production of spring wheat other than durum at 511 million bus was down narrowly from July and was down 6% from the 2012 outturn.

The U.S.D.A. forecast the 2013-14 wheat supply at 2,962 million bus, unchanged from the July projection but down 5% from 3,134 million bus in 2012-13. Domestic disappearance of wheat in the current year was forecast at 1,311 million bus, unchanged from July with food use of wheat projected at a record 958 million bus, up 13 million bus from 2012-13, and feed and residual use at 280 million bus, down from 390 million bus in the previous year.

U.S. wheat exports in 2013-14 were forecast at 1,100 million bus, up 25 million bus from the July projection, up 93 million bus from 2012-13 and the highest since 1,289 million bus in 2010-11. The China demand was a principal reason for the increased export forecast.

The U.S.D.A. forecast the carryover of wheat in the United States on June 1, 2014 at 551 million bus, down 25 million bus from the July projection and down 23% from 718 million bus in 2013. The June 1 wheat inventory in 2014 would be the smallest since 306 million bus in 2008, which, in turn, was the lowest since 1948.

The recent five-year average June 1 wheat inventory was 791 million bus.

Mr. Meyers said principal market movers for wheat during the next several weeks will be size of the U.S. corn crop, China demand, the Southern Hemisphere wheat crop and the outlook for planting the 2014 U.S. winter wheat crop.

He remarked the U.S.D.A.’s August forecasts for both the corn and soybean crops fell below most trade expectations. He said dryness in areas of the Midwest may pull average corn yield down from the August forecast, and the late start to the growing season raised concerns an early frost may further trim yield prospects.

But barring a weather threat, December corn futures may drop 25c from current levels during the next couple of months, Mr. Meyers said.

“That would have to happen for wheat prices to come down a similar amount,” he said.

The wheat market also will be eying developments in Australia and Argentina, Mr. Meyers said.

“The U.S.D.A. maintains good production forecasts for those countries, but we’ll have to see how they get through their growing seasons,” he said.

A bearish influence on wheat markets was improving soil moisture conditions across key parts of the Southwest, Mr. Meyers said. Kansas Agricultural Statistics indicated in its most recent crop progress report that topsoil moisture across the state was 79% adequate to surplus compared with 4% last year, and subsoil moisture was 65% adequate to surplus compared with 4% in 2012.

“The good precipitation seen in many areas in recent weeks means there should be some decent soil moisture for the fall planting season, which has not been the case in the Southwest in the past couple of years,” Mr. Meyers observed.

Winter wheat acreage should come down a bit from 2013 because in areas where farmers may grow wheat, corn or soybeans, the economics favor the latter two crops over wheat, even given a record corn crop and a large soybean crop.

“But that doesn’t necessarily mean the 2014 winter wheat crop will be smaller than the 2013 outturn,” Mr. Meyers said. “If hard red winter wheat yields rebound, we may harvest more wheat even if acreage does not increase.”

Mr. Meyers indicated he thought the Kansas City December wheat future may drop to $6.60@6.70 a bu during the next three months, with December futures in Chicago dropping to around $6.10@6.20 a bu and Minneapolis futures dropping to around $6.90@7 a bu.

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