High wheat stocks, production yield lower prices
USDA projections for larger global and domestic wheat production and wheat stocks are likely to keep prices down, wheat market analysts say.
“It’s going to be hard to find a reason to move (wheat prices) higher, unless exports really start to pick up,” said Byron Behne, marketing manager for Northwest Grain Growers in Walla Walla, Wash.
The department raised projections for U.S. wheat supplies for the 2014-2015 crop year in its Agricultural Supply and Demand Estimate, citing an increase in hard red winter wheat production forecasts, as well as smaller increases for soft red winter, hard red spring and durum.
The USDA projected U.S. wheat ending stocks at 18.05 million metric tons, up from 17.97 million metric tons projected in July and 16.05 million metric tons in 2013.
The USDA projected a season-average farm price range of $5.80 to $6.80 per bushel.
The USDA raised world wheat production from its July report by 10.9 million tons, to a record 716.1 million tons. The report indicated increases of 6 million tons for Russia, 2 million tons for China and 1 million tons for Ukraine. The Russian and Ukraine increases are based on harvest reports indicating very high winter wheat yields, according to the USDA.
The report projects global wheat trade will be nearly unchanged, with increases in Russia and the United States offset by reductions in the European Union and other countries. The changes reflect larger crops in Russia and the United States, and quality problems in the EU, according to the report.
Henry Kornegay, president of Jackson Commodities in Coeur d’Alene, Idaho, said the wheat market will have a tough time sustaining any substantial price rallies.
The USDA’s increased its projection from the July report of global wheat production by 11 million more tons and world carryout by 3.4 million more tons means a lot of competition for U.S. wheat on the world export market, he said.
“All in all, we’re probably going to see the wheat market work lower until we find a reason somewhere in the world to come up out of here,” Kornegay said.
Behne expects white wheat prices will remain in the $6.50 per bushel to $7.25 per bushel range on the Portland market for the year.
“The world numbers really cap our potential as far as how high we could go up,” he said.
It remains to be seen whether white wheat production in the Pacific Northwest is 200 million bushels or 180 million bushels, Behne said.
“You get down below 200 million and stuff starts to get pretty tight,” he said.
A small white wheat crop may limit the pricing downside, assuming the crop is as small as the industry believes, Behne said.
But “there’s not going to be much potential for guys to be netting $7 wheat on the farm this year,” he said.
The analysts agree wheat prices could still go down.
“We still have to go too far, and we haven’t got there,” said Dan Steiner, grains merchant for Pendleton Grain Growers in Pendleton, Ore. “This market has to go too low in order to generate solid demand, because we’ve got big production numbers. There’s a lot of wheat available in the world.”
U.S. soft white wheat prices may stay in the $7 per bushel range if the competing crop in Australia has weather issues, but could drop to $6.50 if Australia has a larger crop, Steiner said.
“There’s not going to be enough demand from the feed side or the export side at this time,” he said. “We have to find that demand, otherwise the inventory just continues to build.”
Questions about European wheat production could help, said Darin Newsom, DTN senior analyst in Omaha, Neb., during a webinar devoted to the USDA’s report.
European production numbers won’t make much difference to world ending stocks, but could be enough to keep traders from unloading on the world market, he said.
There’s only a small increase in global demand, not enough to keep up with the growth in global supplies, Newsom said.
If the size of production increases in Australia, Argentina or China, prices could drop further, Kornegay said.
Political tensions between Russia and the Ukraine could be the wild card to turn prices higher in a hurry, “if we end up with a bigger mess over there than what we have,” Kornegay said.