Fastest wheat sales in six years diminish inventory

Record crops can't keep up

The U.S. and European Union are selling wheat at the fastest pace in at least six years, diminishing stockpiles even as farmers reap a record crop.

Sales from the U.S. in the past three months surged 38 percent from last year and export licenses issued by the 28- nation EU more than doubled, government data show. World inventories will drop to a five-year low by June 30 as farmers harvest 705.4 million metric tons, the U.S. Department of Agriculture estimates. Futures will rise 15 percent to $7.40 a bushel by the start of the next season on July 1, according to the median of 10 analyst estimates compiled by Bloomberg.

China, set to overtake Egypt as the biggest wheat buyer, may import three times more this season. Brazil already bought 41 times more from the U.S. since June 1, USDA data show. Demand increased as futures tumbled 32 percent from a four-year high in July 2012, as drought eased in the U.S., the biggest shipper. The EU is the second-largest exporter.

“Demand is so great with wheat that it’ll be ready for a pretty decent bounce,” said Jon Marcus, the president of the Lakefront Futures & Options LLC brokerage in Chicago who has followed grain markets for about two decades. “Prices have come down pretty significantly this year so I’m anticipating seeing some overseas demand, and it’s going to be significant.”

Grain Inventories

Wheat, last year’s best-performing commodity, tumbled 17 percent to $6.4375 on the Chicago Board of Trade since the start of January. The Standard & Poor’s GSCI gauge of 24 commodities advanced 2 percent, led by crude oil and cocoa, and the MSCI All-Country World Index of equities rose 10 percent. The Bloomberg U.S. Treasury Bond Index lost 4 percent.

Cheaper grain helped drive global food prices tracked by the United Nations to a 14-month low in August and is cutting costs for Flowers Foods Inc. and other bread makers.

Global wheat consumption of 706.81 million tons will outpace production for a second consecutive year, leaving inventories of 172.99 million tons, the lowest since the 2008-09 season, the USDA predicts. The agency will cut its forecast to 172.75 million tons when it releases new estimates at noon in Washington on Sept. 12, according to the average of 15 analyst estimates compiled by Bloomberg.

U.S. exporters sold 15.82 million tons of wheat since the marketing year began June 1, from 11.48 million tons at this time last year and the fastest pace since 2007, according to USDA data. EU export licenses since July 1 climbed to 4.47 million tons, from 2.13 million a year earlier and the most since at least 2004.

Winter Crops

Expanding supply in the former Soviet Union states may keep prices dropping until the end of the year. Harvests in Russia, Ukraine and Kazakhstan, the fifth, sixth and seventh biggest exporters, will rise 46 percent to 92.5 million tons as fields recover from dry weather, the USDA said. Russia’s wheat harvest had reached 39 million tons as of Aug. 28, up 22 percent from 32 million tons a year earlier, Agriculture Ministry data show.

Demand for wheat in animal feed may weaken as farmers take advantage of this year’s plunge in corn prices. U.S. livestock producers used 10.63 million tons last season, the most in 15 years, as the worst drought since the 1930s damaged the corn crop and pushed futures to a record $8.49 a bushel in August 2012. Feed use will drop 28 percent to 7.62 million tons this year, the USDA estimates.

Billion Bushels

Corn is the worst performing commodity this year in the S&P GSCI, sliding 33 percent to $4.6725. The USDA will predict record U.S. production of 13.64 billion bushels (346.5 million tons) on Sept. 12, 27 percent more than a year earlier, according to the average of 34 analyst estimates. Corn was as much as $2.035 cheaper than wheat in Chicago on Aug. 6, the biggest discount for most-active contracts since 2010.

Hedge funds and other speculators became less bearish on wheat in the past two months, trimming their net-short position to 38,390 futures and options from 50,152 in the week ended July 2, U.S. Commodity Futures Trading Commission data show.

Margins on the fresh dough sold by St. Louis-based Panera Bread Co. to its franchisees widened in the second quarter as wheat and labor costs dropped, Chief Financial Officer Roger Matthews said on a conference call with analysts July 24. Margins will keep improving in the second half of the year, said the CFO of the company with more than 1,700 bakery cafes in North America. Its shares will advance 14 percent to $190.39 in 12 months, the average of 18 analyst estimates shows.

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