March 25, 2013
U.S. Soft Red Winter (SRW) wheat has taken over the world export markets in early 2013 after prices fell by enough to make it competitive. It’s against a background of wheat prices generally drifting down amid bearish U.S. Department of Agriculture (USDA) reports.
“In just 60 days, SRW wheat sales have soared and indications are the accelerated pace could continue for at least the next few months,” Casey Chumrau, U.S. Wheat market analyst, wrote in that organization’s Wheat Letter.
“What a difference two months make,” she said, pointing out that as of Dec. 1, 2012 export sales of U.S. SRW wheat were 9% behind the 2011-12 pace and that on Dec. 11 the USDA projected total 2012-13 U.S. SRW exports at 3.95 million tonnes, down 18% on the year.
“But in just 60 days, SRW wheat sales have soared and indications are the accelerated pace could continue for at least the next few months,” she said. “The catalyst for the change was SRW prices falling below the competition for the first time in six months. Wheat buyers noticed, and sales of 1.27 million tonnes since December put 2012-13 SRW sales to date at 3.06 tonnes, notably 27% above last year’s pace. Egypt has been the most aggressive customer, accounting for almost half the December and January sales.”
She also explained that, for example, Egypt’s General Authority for Supply Commodities (GASC) has recently purchased an additional 60,000 tonnes of SRW for March delivery. “Bids on this GASC tender for U.S. SRW ranged from $307 to $324 per tonne free on board (FOB),” Chumrau said. “The closest competing offer was for French wheat at $355 per tonne.”
In its Agri Commodities Monthly, Dutch bank Rabobank cut its CBOT Wheat price forecast for first quarter 2013 by 80¢ per bushel to $7.50 per bushel “as spill-over bearish sentiment from the corn and soybeans complex is expected to continue,” noting a fall in nearby CBOT wheat prices in the first two weeks of February to levels last seen in July 2012.
“CBOT corn and soybean prices have fallen by similar amounts. The broad theme across the grains complex is weaker than expected U.S. export sales driving prices lower,” it said. “Rabobank believes that there may be further downside in the short term.”
“While the bearish momentum of early February will be difficult to recover from, we think improved U.S. export sales and higher feed demand will help support prices at current levels and expect a return of bullish momentum following the next USDA Grain Stocks Report on March 28,” the bank’s analysts said. “We anticipate the report to renew focus on critically low corn stocks and also imply increased wheat feed and residual use — both of which should support wheat prices. Rabobank believes that wheat feeding will exceed the USDA’s forecast, particularly due to consumption in the U.S. Southern Plains, where cash prices currently favor wheat feeding by $20 per tonne,” it said.
It also believes that strong global import demand and cheap U.S. wheat are likely to result in higher U.S. wheat export sales.
“The elimination of import tariffs in countries such as Russia (5% tariff) and Brazil (10% tariff) are likely to increase their import demand in the remaining months of the season,” it said. “We raise our Russian wheat import forecast for 2013-14 by 500,000 tonnes to 2.5 million tonnes, 1 million tonnes above USDA expectations as Russian wheat stocks dwindle and prices continue to hit record-high levels.
“Our forecast for Brazilian wheat imports is up 1 million tonnes to 8 million tonnes, 300,000 tonnes above the USDA’s. We revise Argentina’s wheat exports down 500,000 tonnes to 4 million tonnes for 2012-13 which, in our opinion, suggests that Brazil will need to import at least 4 million tonnes from outside Argentina,” it said. “North American origins are poised to gain a significant share of this business, trading at a discount to competitive origins with U.S. HRS (14% protein) wheat currently priced at $19-per-tonne discount to comparable German varieties.”
“U.S. SRW is the world’s cheapest (except India) at a FOB discount of $25 per tonne to other origins,” it said.
Despite the success of U.S. exporters, the E.U. is still granting wheat export licenses “at pace,” according to the British grains organization HGCA, which said the exports are supported by Algerian buying activity. However, the HGCA quoted its French counterpart, FranceAgriMer, as having revised French end-season stocks higher due to weaker trade within the E.U. and poorer feed demand.