Supply & demand issues could push wheat prices higher

Deteriorating prospects for US corn (maize) production from the 2012 harvest, combined with concern over possible reductions in wheat supplies from traditional areas such as the Black Sea due to lower yields and restrictions on exports, could push wheat prices even higher, according to Offre & Demande Agricole.

European market leader in the provision of independent grain market intelligence services to the farming and agri-food industry, the company says that commodity markets are nervous in anticipation of United States Department of Agriculture (USDA) supply and demand figures to be released on Wednesday (11th July, 2012). These are expected to show a considerable reduction in forecast US corn yields since the USDA’s released its June 2012 predictions, which could further increase prices for wheat and other grains.

Leo von Kameke, a market analyst based at Offre & Demande Agricole’s Cambridge office, states:

“In June, the USDA estimated the average US corn yield at 166 bushels per acre (bu/ac), which combined with a record planted area of 96.4 million acres led them to forecast a potential 2012 harvest of 375.7 million tonnes (MT). However, the US has experienced the driest, hottest June for over 50 years, which has led to a sharp deterioration in growing conditions and a rapid decline in yield expectations. This is generating a great deal of nervousness in a bullish market, which has been reflected in much greater levels of speculative activity and higher prices.

“Crop ratings have fallen nearly 30% in six weeks and now only 48% of the corn crop is rated ‘good to excellent’, compared with 56% last year. With some operators anticipating yields as low as150 bu/ac market analysts have been furiously down-grading their estimates. With the threat of an average US corn yield of below 150bu/ac now a reality, the market is currently basing its projections at around 153bu/ac, 13bu/ac lower than even the USDA’s June 2012 estimate.

“Although some of the damage to potential yields may be reversed if there is significant rainfall before harvest, Offre & Demande Agricole’s estimate for the 2012 US corn harvest is 351MT, some 25MT lower than the USDA’s last-published figure. If less corn is available for feed manufacturers that will increase demand for wheat and barley, with prices following suit. Although the market is expecting a good global barley harvest, there are concerns over wheat supplies, especially from the Black Sea region, due to hot, dry conditions. Russia has also reduced its production estimate from 56MT to 46-49MT, which would cut the potential export surplus by 9MT compared with last year and raise concerns over a possible export ban.

“Wheat prices are also being driven higher by the situation in Ukraine, which is even worse than in Russia. Harvest has started in South Ukraine and yield reductions of up to 40% compared with last year are being reported. Stocks are lower than officially stated and there are concerns that the elections which will be held in the autumn could lead to a ban on wheat exports in order to keep domestic prices low.

“All these factors have led to sharp increases in the price of corn and other cereals. The Chicago Board of Trade (CBOT) contract for December 2012 Corn has risen in value by around 40% since mid-May, topping $7.00/bu for the first time. Speculators have been very active during the last week, with the estimated net-long position having almost doubled to around 110,000 contracts, while Paris Milling wheat hit €245/t and London feed wheat traded above £180/t.

“Despite the risks posed by the ongoing crisis in the Eurozone, market fundamentals in the form of Supply and Demand expectations have really been in evidence this week, which has driven prices higher.”

NOTES FOR EDITORS

1.

Media Contact: Julian Cooksley, Kendalls Communications:

T: 01394 610022      E: julian.cooksley@kendallscom.co.uk

2.

Offre & Demande Agricole was established in France in 1997 and is now the European market leader in the provision of timely, accurate and independent grain market intelligence services to the farming and agri-food industry. A private, independent consulting firm, it aims to help both buyers and sellers of agricultural commodities manage market volatility and price risks.

Through the use of advanced in-house information systems and models based on international sources together with real-time crop data from its own farmer network, analysts and research departments which provide independent, reliable and unbiased information and strategies, the company’s team of consultants advise clients how to market their grain in a clear, straightforward way.

The company has a strong track record of consistently improving clients’ profitability through three strategic activities:

Detailed analysis and research of agricultural and associated marketsThe provision of training courses which give attendees the knowledge and skills to take control of their own marketingAdvice and bespoke consultancy/information services for the farming industry and individual customers

In 2009 Offre & Demande Agricole, opened its first UK office at Unit 3, Three Hills Farm, Bartlow, Cambridge, CB21 4EN (T: 01223 894791).  A second office was opened recently at Unit 3, Home Farm, Welford, Newbury, RG20 8HR (T: 01488 608191).

Further information is available at www.oda-agri.com

Offre & Demande Agricole UK Ltd is based at Unit 3, Three Hills Farm, Bartlow, Cambridge, CB21 4EN (T: 01223 894791).  It also operates from Unit 3, Home Farm, Welford, Newbury, RG20 8HR (T: 01488 608191). Further information is available at www.oda-agri.com

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