Are US wheat export estimates understated?

Grain traders had to sift through an entire slew of USDA reports on January 12. The report that attracted the most attention was the first planting intentions report for the US winter wheat crop that was planted this past autumn. That crop will comprise over 70% of the wheat grown for the 2012-13 marketing year. The average of analysts’ guesstimates was 40.933 million acres, but the actual figure came in slightly more than 1 million acres higher, at 41.947 million acres. That’s substantially above last year’s planted area of 40.646 million acres. Just to put that into historical perspective, US wheat acreage is still below some of the larger plantings of the past decade that averaged about 45 million acres.

Quarterly stocks as of December 1 were 45.134 million tonnes (1.656 billion bushels), 1.05 million tonnes (39 million bushels) below the average of analysts’ guesstimates. That stood in contrast to corn and soybean stocks, both of which came in considerably above expectations. The market focused on the higher-than-expected acreage report, however, and prices plunged on the news, with March wheat falling by 36¢ per bushel.

The other noteworthy item was found in the regular monthly USDA crop report. The estimate for 2011-12 US exports was raised by 680,000 tonnes (25 million bushels). Export commitments stand at 19.95 million tonnes, down from 26.19 million tonnes at this time last year. The USDA target is much lower than last year, though. Final sales are now forecast at 25.86 million tonnes, down from 35.08 million tonnes in 2010-11. Commitments continue to run at a slightly better pace than last year, but more significantly, shipments are very strong. Last year at this time, shipments were 68% of commitments-to-date and 51% of final sales. This year, shipments are 78% of commitments-to-date and 60% of final sales.

The sharp drop in prices in 2011 – cash prices peaked at $9 per bushel last January – has stimulated some foreign trade. The problem, of course, is that the US has competition, primarily from the FSU. Total wheat output for the FSU is estimated at 114 million tonnes, up from drought-stricken 2010-11output of only 81 million tonnes. There are several mitigating factors, though, that allows us to believe that demand will continue to outpace current estimates.

While all grain prices have been in a precipitous downtrend, wheat prices have actually collapsed vis-à-vis corn. Wheat and corn have not traded at the same price since 1996. A glance at a chart of the wheat/corn ratio paints a very clear picture of how far wheat prices have fallen relative to corn prices.

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