USDA will cut wheat estimates further - Goldman

The downgrade by US farm officials to estimates for world wheat production will not be their last, Goldman Sachs said, forecasting a 34% slump in Australian exports of the grain, and outperformance in futures prices.

Revisions on Thursday by the US Department of Agriculture, in its benchmark Wasde report, to crop estimates attracted most attention in corn, for which the estimate for year-end stocks was cut to 619m bushels, well below market expectations.

However, it is wheat futures which stand to fare better, the bank said, flagging the threat of further downgrades to harvest estimates, notably in Argentina, Australia and China.

The comments were echoed by rival banks including Societe Generale, which termed wheat "the big winner" of the Wasde report, and Credit Suisse, which said "the outlook for wheat prices may be slightly more bullish than other grains".

'Further downgrades necessary'

Goldman Sachs analyst Damien Courvalin said that world wheat production in 2012-13 looked, at 647.8m tonnes, set to turn out 5.2m tonnes lower than the USDA is expecting.

"Further downgrades will be necessary" by the USDA.

This will support wheat prices "both outright and relative to corn prices to limit feed demand in the face of lower availability", Mr Courvalin said, flagging the potential for futures to "move sharply higher" if another crop is badly hurt by weather.

"This would likely shift wheat to being the leader of the grain complex," he said.

Weaker prospects

Many commentators have cautioned that the USDA's estimate for Australia's dryness-plagued wheat crop may still too high, despite being downgraded in the Wasde by 3.0m tonnes to 23.0m tonnes.

Goldman Sachs pegged the harvest at 21.0m tonnes, sufficient to support exports of 16.5m tonnes a figure 1.5m tonnes below the USDA forecast and down one-third year on year.

The Goldman export figure is also below an estimate of 17.8m tonnes from Commonwealth Bank of Australia last week.

For Argentina, Goldman pegged the wheat harvest at 10.8m tonnes, below the USDA figure of 11.5m tonnes.

Separately on Thursday, the Buenos Aires grains exchange forecast an Argentina crop of 10.12m tonnes, citing flooding which has hit in particular the main wheat producing Buenos Aires state.

'Increasingly concerned'

Societe Generale's supportive comments for wheat prices reflected the prospect of import demand shifting to the US now former Soviet Union supplies are running dry.

"Global cash prices continue to converge and we continue to expect the US to benefit from this in the latter portion of the wheat marketing year," SocGen analyst Christopher Narayan said.

Credit Suisse on Friday, while forecasting prices declines in all three of Chicago's big three crops ahead, said it was relatively upbeat over wheat futures given that "so many key producers [are] being affected by weather-related disruptions", implying the need for higher values.

"We are increasingly concerned by the outlook of smaller global production and exports in the coming year," Credit Suisse said.

"With global stocks falling once again, we believe the outlook for wheat prices may be slightly more bullish than other grains."

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