Thursday, November 8, 2012

The drought that keeps giving - the tight wheat market




The harvest is in for corn and most of soybeans  but that does not mean that the drought is over for grain markets. US winter wheat conditions are poor. The amount in good to excellent conditions is only 39%, the worst since 1985.This means that we will have tight conditions for wheat in 2012/2013. The Australian harvest is expected to be poor, so world wheat production is already coming in 5.7 million tons lower. The projected ending stock for 2012/2013 are down 44 million bu from September and are supposed to decline 89 mm bu from last marketing year. The market for May -July 2013 is in backwardation and may move to more extreme.

US wheat exports are supposed to be lower given the strong dollar and lower production. There is also expected to be lower exports for the EU-27, Australia, and Canada. There is expected to be higher exports from Russia, Argentina and India. Unfortunately, the policies of those governments may effect the ability of grain to move out of the country.  

Wheat is trading at a greater premium to corn. This may increase further under the current conditions.

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