Last updated: December 11, 2012 5:37 pm

Wheat falls as US forecasts higher supply

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A French farmer drives a combine as he harvests wheat in Blecourt, northern France

Wheat prices fell to a five-month low on Tuesday after the US government said in a closely watched report that supplies of the cereal would be slightly higher than expected, in part thanks to a huge surge in Indian wheat exports.

In its monthly report, the US Department of Agriculture raised its forecast for global wheat supplies in 2012-13 on the back of higher production in China, Canada and Australia. Consumption will still be higher than supply, leading to lower stocks.

But strong wheat exports from India would ease the supply crunch, the USDA said. “India is seizing the opportunity to export record quantities of competitively priced wheat,” the USDA said. The surge in Indian exports comes after New Delhi lifted an export ban it imposed years ago to keep domestic wheat prices low.

The ban, which was officially lifted in September 2011, saddled India “with burdensome [wheat] stocks” which are now slowly finding their way into the international market, the USDA said. “As global exportable supplies tighten, particularly from Russia and Ukraine, India’s wheat is effectively replacing Black Sea wheat in several Middle East and east African countries,” it said.

India, which for the past five years has exported almost no wheat, would be in the 2012 calendar year the world’s sixth-largest wheat exporter, ahead of traditionally bigger exporters such as Ukraine, Argentina and Kazakhstan.

Agricultural commodities traders reacted to the new supply and demand estimates by selling wheat futures in Chicago, Kansas, Minneapolis, Paris and London, the main exchanges for the grain. Even after the losses, wheat prices are up between 20 and 35 per cent, depending on the location and quality of the grain.

In Chicago, soft red winter wheat, which is used mostly for animal feed, fell to its lowest price since July. In afternoon trading, CBOT December wheat was at $8.10 a bushel, down 2.7 per cent on the day. In Paris, European milling wheat fell to a six-week low. Liffe March milling wheat dropped 1.4 per cent to €262.5 per tonne.

The USDA did not make any changes to its supply and demand forecast for US corn, keeping inventories at a low of 647m bushels, slightly below what traders in Chicago have anticipated. Corn prices barely reacted to the report. CBOT December corn was down 0.1 per cent to $7.25¾ a bushel.

The US government cut its forecast slightly for US soyabean supplies because of the impact of the drought, but the reduction was not enough to trigger fresh buying. CBOT January soyabeans were down 0.2 per cent to $14.71½ a bushel.

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