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U.S. wheat demand improves

02/21/2012 @ 7:09am

Demand for U.S. wheat is likely to rise in the next few months and may exceed the government forecast of 26.5 million metric tons for the marketing year ending May 31 due to strong overseas demand for animal feed, logistical constraints, and lower and costlier availability in the Black Sea region, a senior industry analyst said.

Global demand is increasing, and fewer exports from Ukraine and Russia can potentially push up sales from the U.S., which are now very competitive, Jay O'Neil, senior agricultural economist, Kansas State University, told Dow Jones Newswires.

Some of this shift in demand is already visible with Egypt, which mostly bought Russian wheat for several months now, then turned to the U.S. to meet its demand for April shipments, he said.

In the previous two tenders, Egypt, world's top wheat importer, has purchased around 235,000 tons U.S. soft red winter wheat at $259 and $262 a ton, free-on-board, undercutting Russia, where domestic prices are on the rise as exportable surplus reduces and growers and local traders seek higher rates for shipments in the last quarter of the marketing year, which ends June 30.

Russian wheat was sold for exports around $245/ton FOB in recent months but latest offers are upward of $275/ton FOB.

The soft varieties are the cheapest U.S. wheat available and ideally suited for price-sensitive markets such as Egypt and also for animal feed, O'Neil said.

"It is a bit unusual but we have this situation where the U.S. corn inventories are at a precarious level with low stocks-to-usage ratio and this has pushed up the demand for soft wheat in animal feed rations both locally and overseas," he said.

Demand is strong for U.S. white and soft red wheat, despite supply from Australia and Black Sea region.

The U.S. has forecast a 24% decline in overall wheat exports in 2011-12, but projected 10% and 19% rises in shipments of white and soft red wheat to 200 million and 130 million bushels, respectively.

Nearby corn futures contracts on the Chicago Board of Trade again briefly traded at a premium to wheat this month, a phenomenon that started around April 2011 for the first time in 16 years, reflecting the tight U.S. corn inventories.

Demand for U.S. wheat may also rise because Russia's neighbor, Ukraine, another major supplier of low grade wheat globally, plans to restrict exports until the next harvest comes in June.

O'Neil said this is because of fears that a severe winter and lack of snow cover may have damaged the standing crop, but this won't be known for a few months.

U.S. winter wheat output prospects are still good despite a lack of rain and snow cover after planting late last year. But rains are badly needed and will be critical when the grain comes out of dormancy next month.

-By Sameer Mohindru, Dow Jones Newswires; sameer.mohindru@dowjones.com; +65-94552449

(END) Dow Jones Newswires

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