Here are the Top 10 factors affecting the tightening world wheat market, according to a report from U.S. Wheat Associates:
1. Canadian planting down 17 percent, the smallest crop since 1970, exports off 22 percent, hot/dry weather has affected yields.
2. World ending stocks drop to 30-year low; export origin holdings down 40 percent.
3. Australia stocks low, 2008 crop looking good.
4. Argentine wheat crop is fully committed, government may restrict exports.
5. Heavy rains deteriorate Western European crop quality, EU export taxes discussed.
6. Drought hits Eastern Europe and Ukraine crops, weather damage in Russia, low stocks, export restrictions imposed.
7. North African drought, Morocco crop down 76 percent, imports double to 3 million metric tons.
8. Ocean freight transportation rates at record highs.
9. U.S. winter wheat crop missed production expectations.
10. Corn/wheat price spread at record level.
According to USDA’s August world wheat outlook, forecast world wheat production for 2007-08 was reduced 2 million tons to 610 million tons. The forecasted foreign wheat production declined 1.2 million tons from July to 552.9 million tons.
The largest drop was for the EU-27, which declined 1.7 million tons to 124.9 million tons. Excessive rains across Northern Europe and drought in the Southeast were not favorable for crop production, and forecasts for wheat production were reduced for France, Bulgaria, Germany, Romania, and Hungary.
Wheat production projected for 12 countries of the former Soviet Union increased 1.25 million tons to 85.5 million tons. Good rains and favorable temperatures boosted spring wheat production prospects in Russia and Kazakhstan, each up 500,000 tons in August. Harvest reports in Ukraine indicated a wheat crop of 13.3 million tons, up fractionally.
Wheat production for India increased 1.2 million tons to 74.9 million tons, according to the Indian government. Favorable growing conditions and strong prices at planting support the increases in area and yield.
Extremely hot dry conditions during July in parts of Alberta and Saskatchewan cut Canada’s wheat production prospects by 1 million tons to 21.5 million tons. A cold dry winter in parts of Turkey cut wheat production 500,000 tons to 15.5 million. Scattered cold and dry conditions also trimmed prospects for wheat production in Brazil.
World wheat consumption in 2007-08 is projected to reach 620.5 million tons, up slightly from July. Rain which fell on the wheat harvest in Northern Europe reduced wheat quality, which resulted in prospects for wheat feed use increasing 500,000 tons to 57.5 million tons. Increased production and stocks in Ukraine boosted both feed and food use prospects for 2007-08, putting wheat use up 400,000 tons from July to 11.9 million tons.
For Morocco, strong imports at the end of 2006-07 boosted stocks for the start of 2007-08 and increased food use prospects 300,000 tons to 7.1 million tons.
Projected global wheat ending stocks for 2007-08 were reduced 1.8 million tons in August to 114.8 million tons, due to the combination of reduced production and increased use. Projected global ending stocks are down 10.1 million tons compared with a year earlier and would be the lowest since 1981-82.
Importers’ recent buying pace indicates continued strong demand for wheat despite relatively high prices.
Projected world wheat trade for 2007-08 increased 1 million tons to 108 million tons. With reduced production, EU-27 wheat imports are projected 500,000 tons higher at 6.5 million tons. Croatia’s import prospects increased slightly and unaccounted imports were increased.
Competition among exporters for 2007-08 is dynamic, according to USDA. Australia’s exports for 2006-07 (July-June) were reduced in August, leaving more supplies to be exported in early 2007-08. Exports are projected 500,000 tons higher to 14.5 million tons.
Reduced production and high internal prices are expected to limit EU-27 exports, which are projected 500,000 tons lower, at 11.5 million tons. Russia has improved production prospects for spring wheat and has been selling aggressively, boosting projected exports 500,000 tons to 11 million tons.