World Grain - December 2007 - 16

GRAINMARKETREVIEW

World wheat stocks-to-use ratio

Wheat
World looks to next season for relief
from exceptionally tight supplies
by Melissa Alexander

Source: U.S. Department of Agriculture

Indicative wheat export price
U.S. No. 2 hard red winter, ordinary, FOB, Gulf
380
350
320
290
260
230
200
170
140
110
80
50

(in U.S. dollars per tonne)

Oct 2007
July
r
Ap
Jan
Oct 2006
July
r
Ap
Jan
Oct 2005
July
r
Ap
Jan
Oct 2004
July
r
Ap
Jan
Oct 2003
July
r
Ap
Jan
Oct 2002
July

6
5-0
200 03
2200 00
9199 97
6199 94
3199 91
0199 88
7198 85
4198 82
1198 79
8197 6
5-7
197 73
2197 0
9-7
196 67
6196 64
3196 61
0196

The 2007-08 wheat marketing year has not been kind to wheat users around the world. And with end-of-season wheat stocks projected
at 30-year lows, processors are keeping their fingers crossed for improvements in 2008-09.
A recent report from the U.S. Department of Agriculture (USDA)
put 2007-08 wheat ending stocks at 109.8 million tonnes. And while
that figure was up about 3 million tonnes from the previous estimate, it
still would be the smallest carryover since 1977-78's 109.2 million.
Even more worrisome is the stocks-to-use ratio, which is projected
at 17.8%, the smallest since at least 1960, the start of the USDA's
historical database. Put another way, carryover stocks represent an
annual reserve on hand to cover only 300,800 tonnes of use per day
for a world that is consuming 1.7 million tonnes per day in 2007-08.
Declines in planted area and adverse weather in many key growing
regions cut harvests this season. And after several consecutive years
of consumption outpacing production, the world has been forced to
draw down its wheat supply cushion to meet demand.
The bullish wheat situation has coincided with inflationary concerns and bullish sentiment in other physical commodities such as oil
and metals. These developments have attracted investors to the wheat
market, helping to carry prices to unprecedented highs.
In early October, both Kansas City Board of Trade hard red winter
wheat futures and Chicago Board of Trade soft wheat futures peaked
at about $350 a tonne. Although prices as of mid-November had retreated by about 18% from those highs, they still remained above the
previous record set in 1996 at around $260 a tonne.
The high wheat costs have pressured processors margins and complicated many governments' efforts to keep consumer food prices in
check. In the short term, the Argentine harvest should help to ease
some of the supply pressures, and Australia could export 9 million
tonnes, despite its devastating drought.
The latest USDA report raised Argentina's projected output to 15.5
million tonnes, up from 14.5 million earlier, with exports raised to 11
million tonnes. But a mid-November freeze in Argentina's Pampas
pushed down crop condition ratings, which could have an effect on
final production numbers.
Beyond the Southern Hemisphere, export supply prospects into
2008 are uncertain. Russia in November instituted a wheat export
duty of 10% of customs value, not less than 22 euros, and news reports indicated the government might raise the duty to 105 euros in
January or ban wheat exports altogether to curb domestic food price
increases. Russia estimates its total 2007-08 exports at 12 million to
14 million tonnes.

44%
40%
36%
32%
28%
24%
20%
16%
12%
8%
4%
0%

Source: U.S. Department of Agriculture

In Ukraine, the government earlier in the year instituted wheat export quotas, which essentially serve as an export ban, to run through
December 2007. But in October, Ukraine extended the quota to run
through March 2008, based on rising domestic prices.
As for the 2008-09 outlook, no official projections for planted area
or production have yet been made. One private analyst is confident
2008-09 global harvested area will increase from 2007-08's 535 million ha because of high prices, but he doubts it will reach the modern
peak of 570 million in 1996-97.
Private estimates put U.S. planted wheat area at 25.6 million ha,
up 6% from 2007-08, based on high wheat prices. The U.S. winter
wheat crop is in the ground, and so far, conditions have been dryer
than desired in key hard red winter states.
In Kansas, the largest U.S. producing state, 51% of the crop was
rated very poor to fair as of mid-November versus 41% at the same
time last year, while wheat rated good to excellent was 49% versus
WG
59% last year.
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