Hello Again.
Last Friday,
i believe that a serious Article occurs for Wheat in the Thomson Reuters Inside Agriculture Report of 28th September 2012.
I decide to put it here:
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COLUMN-Higher U.S. wheat plantings likely - and needed
Stubbornly high prices have served to keep U.S. wheat out of contention on the export market in recent months,
but a broad jump in U.S. winter wheat seedings coupled with growth in overseas interest
could serve to make U.S. wheat more competitive going into 2013.
It's no surprise that farmers in top hard red wheat states such as Kansas are upping their planted area of the crop this year,
but growers across the eastern Corn Belt seem to be getting in on the act too, with Illinois, Indiana and Ohio
farmers all reportedly sowing more winter wheat in 2012 than in recent years
to set the stage for a large bump in U.S. wheat supplies come 2013.
Thanks to crop production issues overseas, however,
those additional supplies could prove to be a boon and not a hindrance.
OVERPRICED, OR JUST AHEAD OF ITS TIME?
It's easy to see why the pace of U.S. wheat export sales has been sluggish over the past few months when you compare
the price of U.S. export-ready wheat to that of wheat supplies from other regions.
Good quality U.S. wheat has consistently traded at around a $25-40 per metric ton premium over similar grade wheat available out of France,
and at an even larger premium over Russian and Ukrainian supplies.
Even U.S. soft red wheat has traded at a premium to French wheat,
meaning that would-be buyers would have to pay more for lesser quality supplies.
And these price differentials don't even factor in the higher freight costs tied to shipping grain
from the U.S. versus from Europe to top importing regions such as the Middle East and Africa.
For a graphic of U.S. versus exporter wheat prices, click here ( 1 )
Given that U.S. wheat inventories can hardly be considered tight at more than 18 million tons
(and more than 50 percent of total projected U.S. consumption for the coming year)
the reason for the persistent relative strength in U.S. wheat values is not immediately obvious.
Solid U.S. interior wheat basis levels reveal a supportive element has been in play in the U.S. cash market,
where livestock feeders have reportedly been upping their wheat purchases in a bid to scale back corn market exposure.
But given that both soft and hard red wheat futures have held a premium to corn futures since mid-May -
and that those premiums recently widened to more than $1.40 per bushel for soft wheat and $1.65 for hard - price-
sensitive feedlot managers are unlikely to be the only wheat buyers out there.
Further, domestic feed demand is unlikely to account for the firm basis levels being seen at U.S. Gulf export terminals,
which determine the ultimate price tag on U.S. wheat shipments overseas.
U.S. Gulf basis for hard red wheat recently scaled the highest levels on record of close to $1.20 per bushel,
even as the overall sales pace of that grade of wheat has been slow.
For a graphic of U.S. wheat basis trends, click here ( 2 )
This divergence in trends between the firm tone of basis levels and lackluster pace of sales hints that another reason aside
from fundamental demand may be responsible for propping up U.S. wheat values at the present time.
SIT AND WAIT
A number of factors could be in play to maintain the upward lift on wheat basis levels even in the face of slow overseas demand.
At the farmer level, the short corn and soybean crops currently being retrieved from parched U.S. fields have left room
in onfarm storage bins for additional crops that in most years would have been cleared out by now.
In addition, there is a less precipitous drop-off in forward wheat values than there is in the corn market,
meaning that farmers have a strong incentive to offload their corn supplies immediately but can afford
to sit on their wheat inventory for the time being.
For a graphic of wheat versus corn forward curves, click here ( 3 )
That option to store wheat rather than sell it is also popular at the processor and strategic trader level,
with both those parties being fully aware of the crop production problems seen this year
in top exporting regions such as the Black Sea.
They and other market trackers expect that sizeable disruption to export shipments
from that or other exporting regions would quickly set the stage for an uptick in U.S export interest,
even if U.S. prices maintain their premium to other origins.
In addition, wheat processors and long-term traders will be aware of the fact that it could take several more months
before any shortage of grain from the Black Sea region translates into firmer U.S. prices,
as overall inventories of wheat in top importing areas remains fairly high.
But over time, and especially if Australian growers continue to suffer from a lack of rainfall,
a sense of supply shortness is likely to merge among wheat importers which could easily trigger
a drive for imports from farther afield, such as the United States.
STRATEGIC OPPORTUNISTS?
Farmers currently wrapping up their 2012 corn and soybean harvests and beginning their 2012/13 winter wheat plantings
are unlikely to be as focused on the upside potential for the wheat market as other market trackers.
And yet the anecdotal evidence of widespread winter wheat sowing from across the Corn Belt and through the Southeast
suggests they are fully aware of the potential opportunities for a strong wheat market rally over the coming months.
Certainly, many growers are merely planting wheat because they always do so during the present time slot,
and are perhaps able to seed a few additional acres this year thanks to the early corn harvest and friendly fall weather.
But other growers are no doubt making a strategic bet that wheat prices will undergo a stretch of sustained price strength
going into 2013 after the shortfalls of the U.S. corn and soybean crops force global grain end users
to increase consumption rates of wheat and other crops.
For an interactive graphic U.S. wheat production by state and type, click here ( 4 )
Only time will tell exactly how many additional winter wheat acres U.S. farmers will sow this year as planting is still under way.
But early signs are that American farmers intend to increase wheat production across the country this year
in a bid to capitalize on the prevailing high prices available.
For end users of the crop, such a climb in output will prove to be a welcome development,
even if they don't currently like the look of U.S. export prices.
--- Gavin Maguire, Reuters market analyst
--- The views expressed are his own
( 1 )
http://pdf.reuters.com/pdfnews/pdfn..._435ec8a86e7749f09717ff4839ac1a95_PRIMARY.gif ,
( 2 )
http://pdf.reuters.com/pdfnews/pdfn..._c698b85a92fd49819e23f59ff840facd_PRIMARY.gif ,
( 3 )
http://graphics.thomsonreuters.com/GJM/WhtCornCurves.GIF ,
( 4 )
http://graphics.thomsonreuters.com/GJM/USWheat.html .
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Kind Regards,
George Kanellopoulos.
