World wheat output is in 2011-12 to return to lagging demand, as weak prices prompt farmers to turn to other crops, Commerzbank has predicted.

Growers' impatience at flagging wheat prices, evident in a slump of 15% in US sowings in two years, will prompt them to continue turning to other crops such as corn, cotton and soybeans.

"All over the world, areas previously used to grow wheat are increasingly converted to more profitable agricultural commodities," the German bank said.

"In light of the existing excess supply, it can be assumed that the trend of decreasing wheat acreages will continue."

'Short of demand'

The decline - after two years when wheat production exceeded demand by 70m tonnes, with a further surplus expected for 2010-11 – will prove sufficient to provoke a production deficit for the first time in four years.

"It can be expected that supply will fall short of demand by (2011-12] and that global wheat stocks will then start to fall," Commerzbank analysts said.

Expectations of a decline would, in turn, feed into market prices, which would initially "stabilise" before rising "in the mid-to-long term".

Chicago's spot contract will end the year at $5.10 a bushel, a level it has struggled to approach so far this year, with Paris wheat finishing at E145 a tonne.

China demand 

The bank also forecast higher prices of corn, which would end the year at $4 a bushel, and soybeans, which would hit $10 a bushel, levels which the crops have respectively failed to hit since January.

Both crops would be supported by demand from China, where corn prices at double Chicago levels indicated a "supply bottleneck, which will probably contribute to a decline in Chinese inventories".

While world soybean production looked set to show a small surplus over demand in 2010-11, "this could revert back to a deficit quite quickly… if the trend of a growing Chinese demand for soybeans continues or if the supply ends up being lower than expected."

Furthermore, the prospect of political setbacks in Argentina, a country prone to strikes, or infrastructure problems in Brazil, where farmers have been forced to store crop in fields, "may lead to temporary supply shortages in South America, which would lead to a reduction in US soybean stocks".

"This would have a supportive effect on the US soybean price."