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Wheat supplies remain uncertain, analyst says

03/01/2013 @ 3:46pm

Heavy snows in February have brought protection and very needed moisture to U.S. winter wheat, especially in the Plains, putting pressure on wheat prices amid expectations for a better spring/summer harvest.

But while 10-12 inches of snow looks impressive, it's still only about an inch of rain, across a wide swath of the hard red winter wheat belt that suffered moisture deficits far greater than an inch. Plains winter wheat went into dormancy last fall in the worst condition since USDA started keeping records.

"The snow was very welcome, but far from a drought-buster," says Casey Chumrau, market analyst for U.S. Wheat Associates.

In fact, she thinks the moisture might even reduce Plains wheat production. If the wheat still looks poor once the snow melts, farmers might plow up their wheat and use the soil moisture to plant more promising spring crops.

Amid reports that about 40% of the Kansas crop was near poor condition before the snow, she expects to see quite a bit of abandonment.

But mostly, from her office in Virginia, Chumrau is watching wheat demand, both foreign and domestic. After last year's drought, U.S. old-crop wheat stocks to sell are tight, and new-crop supplies remain uncertain.

Thanks to a surprising amount of wheat feeding by U.S. livestock producers, domestic wheat stocks are nearly 20% below two years ago and 7 percent below the tight level of a year ago.

HRW stocks are roughly 4.1 percent below a year ago and SRW is about 28 percent shorter.

And the U.S. still has to fill export orders, but Chumrau says old-crop stocks are sufficient.

One new potential buyer is Brazil, which can't get enough wheat from its main supplier Argentina, so it's now considering northern hemisphere wheat. Brazilian millers have reportedly checked prices in North America and the Black Sea. Typically, such wheat is subject to a 10% import duty for being outside South America's Mercosur trading bloc. But Brazil's government reportedly eliminated the duty in order to accommodate its millers. Argentina has become a less reliable supplier as political issues hobble the government. For example, says Chumrau, shippers can't get licenses to export Argentine wheat, which has pressured domestic prices. Since Argentine farmers depend on exports for half their sales, they have started to cut back wheat acreage as they lose foreign markets.

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