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
'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.
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.
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."