The message that the world is well supplied with wheat has been reinforced by events in recent months, with estimates for 2009-10 production being revised higher and prospects for 2010-11 looking bearish, with increased 2009-10 carryout stocks covering a fall in production.

Currency movements and fund activity remain major driving factors, although a major production loss in a key producing region could change the outlook dramatically. In particular, E.U. grain has become more competitive as the effect of Greece’s financial problems has triggered a fall in the euro against the U.S. dollar since January.

In its Grain Market Report in January, the International Grains Council (IGC) described wheat market fundamentals as remaining "generally bearish," although the IGC did note that "technical activity and changes in currencies sometimes influenced direction."

"Expectations of fresh buying by speculators contributed to temporary gains, especially in the U.S., with further support from wintry weather that disrupted grain transportation and raised concerns about potential crop damage, including in North America, Europe and the CIS," it said. "However, mid-January’s official crop reports in the U.S. turned wheat markets sharply lower."

At the same time, the IGC raised its estimate for world wheat production by 6 million tonnes to 674 million, just 12 million tonnes less than the record 2008 crop, on the basis of sharply higher estimates for the former Soviet Union and Canada.

The most recent USDA World Agricultural Supply and Demand Estimates report puts total production in 2009-10 at 677.44 million tonnes, up from the previous estimate of 676.13 million. The USDA figure for the previous year is 682.69 million tonnes.

The rise in the USDA’s 2009-10 estimate was because of an increased figure for Argentina, where the USDA has factored in an extra 1 million tonnes following late season rains which raised harvest area and yields in the key eastern growing regions. An extra 400,000 tonnes was added to the figure for Ukraine on the basis of revisions to official estimates for yields, which more than offset a small reduction in harvested area.

The IGC has also started to look at 2010-11. "Weather conditions in the northern hemisphere were generally favorable for winter grains planting and establishment," it noted in its January report.

It put harvested area for 2010 at 221 million hectares, down 1%. "Assuming trend yields, production is projected at 653 million tonnes, some 21 million less than in 2009 but the third largest on record," it said. "In the E.U., where conditions remain favorable for winter wheat, sowings are expected to increase at the expense of barley. In the CIS, some areas have been exposed to frost damage."

The IGC also noted exceptionally low winter wheat plantings in the U.S., at 15 million hectares, which it put down to late maize and soybean harvesting.

At its recent annual Outlook Forum, the USDA released projections showing 2010-11 U.S. wheat production at 52.9 million tonnes, down from 60.3 million in 2009-10. Total U.S. supply for 2010-11 is projected at 82.6 million tonnes, a 10-year high.

Australia has cut its estimate for the 2009-10 wheat crop to 21.7 million tonnes from 22 million, still the highest level for four years. A hot, dry spring in some areas, followed by heavy rain, reduced yields, the Australian Bureau for Agricultural and Resource Economics said.

Chris Lyddon is World Grain’s European editor. He may be contacted at: