Washington, DC
June 14, 2007
Source:
U.S. Wheat Associates Wheat Letter
by Joe Sowers, U.S. Wheat
Associates Market Analyst
As the Northern Hemisphere begins harvesting its wheat, futures
prices typically begin falling. Yet prices this week rose to
11-year highs in the U.S. and to all-time records in the
European Union spurred by untimely rains in the U.S. Southern
Plains and sustained drought in the Black Sea region.
USDA’s June 11
World Agricultural Supply and Demand Estimates (WASDE)
revised 2007/08 world production down by 6.7 MMT from last month
and estimated the world will now produce 10 MMT less wheat than
it will use. With stocks and exportable supplies at multi-decade
lows, just about any supply disturbance will spark price
volatility.
The WASDE revised down estimates of production from the Black
Sea region by 7 MMT from last month due to pre-harvest drought
in southern Ukraine and lower spring wheat plantings in Russia.
Black Sea region export estimates declined 5 MMT in anticipation
that the Ukraine government will try to keep domestic prices
stable by limiting exports.
While the report forecasts lower exports from Canada, Argentina
and the EU-27, it estimates U.S. exports will increase by 2.5
MMT in 2007/08 and that is likely to make U.S. harvest news a
major near-term focus for wheat markets. This week, in fact,
speculative and technical trading helped push prices up with
weather news from the U.S. Southern Plains, even though harvest
is only five percent completed and it is still too early to
assess any impact on yield and quality from the wet conditions.
World supplies have fallen to their lowest level since 1977/78.
Among major exporters, the European Union took advantage of high
prices last year to liquidate high intervention stocks and
Australia currently has a stock of 3 MMT compared to nearly 10
MMT at this point last year. World stocks currently comprise
only 18 percent of world consumption – the lowest that ratio has
been since USDA started recording the data nearly 50 years ago –
leaving little buffer to compensate for poor weather.
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