As the current wheat marketing year progresses, one factor is clear: world wheat stocks will be plentiful. With 2009-10 global production forecast at its second highest level on record and consumption projected to advance moderately, the supply panics that dominated the market during the past few seasons have abated.

In recent projections, the U.S. Department of Agriculture (USDA) estimated global 2009-10 wheat output at 668 million tonnes. While that figure is down 2% from the previous season’s record harvest, 2009-10 production, when combined with beginning stocks, will lift total global wheat supplies for the marketing year to about 835 million tonnes, the most on record and up 4% from 2008-09.

And by the end of the 2009-10 season, the USDA estimates wheat stocks should remain at comfortable levels. At 187 million tonnes, representing 29% of 2009-10 domestic use, global ending stocks and the ratio to use both would stand at their highest levels since 2001-02.

If these estimates are realized, the wheat market would see two consecutive seasons of stocks expansion, both in absolute tonnage and in the stocks-to-use ratio, for the first time in a decade. With that kind of supply build-up, along with a projected 16-million-tonne year-on-year drop in exports, wheat fundamentals typically would point to weaker prices.

But as the wheat industry has seen in the past few years, wheat fundamentals don’t always tell the whole story in price movement. While increasing wheat supplies definitely have pressured prices in the past few months, the wheat market still remains in thrall to the influence of "outside factors."

As the Northern Hemisphere’s wheat harvest wound down in August and September and the supply situation became more defined, wheat prices came under significant pressure. The indicative wheat export price dropped in September by some 16% from a month earlier to under $175 a tonne.

The decline marked the first time since May 2007 that wheat prices had fallen below $200 a tonne. Indeed, at an average of $172, wheat prices in September 2009 were the lowest in more than four years; the last time the average export price stood that low was in January 2005, at $167.

But the 2009 wheat price lows would not stand for even a month. By the end of October, the export price had rallied by some 22%, back up to $210 a tonne.

One reason for the upward move was weather-related delays in U.S. maize and soybean harvesting, which sparked gains in corn and soybean futures and provided underlying support to wheat. That support stemmed from concerns that the fall-crop harvest delays could affect the planted area of or the condition of U.S. soft red winter wheat for the 2010-11 crop year.

U.S. Midwest farmers often follow maize and particularly soybeans with soft wheat in their crop rotations. If the harvest delays were to drag on, the optimal window for soft winter wheat sowing could close.

But the fall-crop harvest situation was only one factor that pushed up wheat prices, and many analysts noted it was not the most important issue. Instead, as one analyst said in a report from the Chicago markets, "Wheat’s just coming along with the crowd here. The grains are part and parcel of the entire commodities basket."

In other words, the same technical, macroeconomic and monetary issues that played such a big role in the 2007-2008 wheat market remain: investment fund trading, global economic prospects, the performance of equities and advancing metals and crude oil prices, much of the latter driven by weakness in the U.S. dollar against other currencies.

Typically, those influences create a lot of volatility. If the wheat industry had anticipated calmer markets once wheat’s supply tightness eased, it may have to wait a while longer.

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