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Wheat prices - will bumper supplies undermine them in 2012?

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Wheat prices had a poor 2011, following up their strong gains of 2010, fostered by drought in Russia.

Chicago wheat fell by nearly 18% in Chicago with bigger declines in Europe, which felt less influence from resilient corn prices and more of the downside from the return of Black Sea countries to exports.

Indeed, helped by bumper Black Sea crops, world stocks are expected to end 2011-12 at their highest in a decade –a factor which would appear to spell gloom for prices this year.

Can another year of decline be avoided? (For forecasts for Paris wheat prices, click here.)

Bank of America Merrill Lynch

"Following one of the largest crops ever, world wheat supplies are likely to be more than ample. On some estimates, global wheat production could increase by over 6% this year, while demand will only rise by 2%.

"This could put further downward pressure on prices.

"Still, the correlation between wheat and corn has picked up strongly. An even sharper-than-expected pick-up in wheat for feed use or an even tighter corn market should global economic conditions surprise to the upside could provide a floor to prices.

"Demand for feed, which could make up 19% of total world wheat consumption, has been picking up strongly, likely increasing by over 5.5% this year.

"With wheat prices trading at a discount to corn, animal feeders in United States, Europe and China are boosting the consumption of wheat for feed use. This could be about three times the average annual percentage increase in feed consumption of wheat."


"Even if the overall supply situation in the wheat market is much more relaxed than for corn, opportunities for substitution in relation to cultivation areas and for animal feed should also support wheat prices.

Commerzbank forecasts for Chicago wheat price, 2012

Q1: $6.40 a bushel

Q2: $6.60 a bushel

Q3: $6.80 a bushel

Q4: $7.00 a bushel

Forecasts for average price, near-term contract, during the quarter

Year average: $6.70 a bushel, ($7.20 a bushel in 2011)

"One risk candidate here is Australia, where heavy rain could lead to a deterioration in the quality of the bumper crop.

"Nor does the next wheat harvest look positive everywhere - conditions for winter grain in the Ukraine are so serious due to a lack of rainfall that the Ukrainian ministry of agriculture expects to have to import supplies in the 2012-13 season.

"A subdued price trend seems likely even if no further shocks are forthcoming due to negative macroeconomic news."

Goldman Sachs

"The global and US wheat markets are amply supplied, especially relative to the tight US corn market.

"The confirmation of high wheat supplies despite stronger global feed demand lead us to expect that wheat prices will continue to trade at a discount to corn prices in the coming months, with the outperformance of wheat relative to corn prices likely now deferred until at least next summer.

"Our expectation of modestly lower crop prices on a 12-month horizon suggests that producers should take advantage of any rally in crop prices to implement hedge programmes for the 2012-13 crop year, especially for wheat."

Morgan Stanley

"We expect an excess of feed quality wheat to persist through the first half of 2012.

"The US has found itself relatively oversupplied with low-protein soft red winter wheat, with stocks of high-protein hard red spring wheat constrained by poor 2011 planting.

"Despite production shortfalls in US high-protein wheat cheaper alternatives from the Black Sea, the European Union and Argentina will likely continue to edge out US exports, leaving upside to US feed demand the only potentiall positive catalyst into the first quarter of 2012.

"With the corn balance historically tight in the US as well as globally, and wheat prices broadly trading at a discount to corn, we continue to expect that wheat will steal feed share from corn."


"Lower wheat prices are forecast for 2012 than we have seen in 2011. However, from current spot levels, our view is neutral.

Rabobank forecasts for Chicago wheat price, 2012

Q1: $5.95 a bushel

Q2: $6.30 a bushel

Q3: $6.15 a bushel

Q4: $5.95 a bushel

Forecasts for average price, near-term contract, during the quarter

"The outlook for the 2012-13 season is not so clear, with winter wheat planting conditions in a number of regions far from ideal.

"A weaker US dollar will likely provide some support for Chicago prices, while a lack of export competitiveness will see [Paris] prices under pressure.

"Wheat prices in the US are expected to be more a function of the domestic corn market and less affected by the global wheat dynamics than prices elsewhere.

"European wheat prices look set to have the most potential for downside due to lower-cost export competition from the Black Sea region."

Societe Generale

"While we agree that the projected 2011-12 global stocks are ample, we argue that the global balance will quickly tighten in the coming years.

Societe Generale forecasts for Chicago wheat price, 2012

Q1: $7.00 a bushel

Q2: $7.25 a bushel

Q3: $7.80 a bushel

Q4: $7.80 a bushel

Forecasts for average price, near-term contract, during the quarter

"In the face of wheat's current discount to corn prices, and the beginning of the inclusion of wheat into feed rations, this situation could be compounded quite quickly.

"We realise our view differs from those that suggest wheat may stay at a steep discount to corn for the foreseeable future. To be sure, our price forecasts suggest that the wheat-to-corn ratio will remain below historical levels for some time.

"Net, we expect the wheat-corn ratio to remain historically low in the foreseeable future, but to move in favour of wheat."

Standard Chartered

Standard Chartered forecasts for Chicago wheat price, 2012

Q1: $7.00 a bushel

Q2: $7.35 a bushel

Q3: $7.00 a bushel

Q4: $6.75 a bushel

Forecasts for average price, near-term contract, during the quarter

Year average: $6.93 a bushel

US Commodities

"The bull market in wheat started with weather problems in the early summer of 2010. We have now come full circle - the negative market is a result of improved werather conditions in most of the world.

US Commodities projected range for Chicago wheat prices in 2012

$5.90-6.60 a bushel, assuming neutral fundamentals

"World competition is keen. The US, Europe, Australia, Argentina and the Black Sea region are all aggressively competing for the same business."


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