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From Bloomberg, 1 hour ago

"Wheat Stockpiles Will Be ‘Tight,’ U.S. Wheat Associates Says

By Aya Takada

June 15 (Bloomberg) -- Global supplies of wheat, the world’s second-most consumed grain, will be “historically tight” next year even after bumper harvests, U.S. Wheat Associates Inc. President Alan Tracy said.

Growers worldwide are harvesting what will likely be the second-biggest crop on record this year, following the largest- ever last season, Tracy said in an interview in Tokyo. Still, world wheat consumption may rise as the economic slump prompts some consumers to switch from meat to cereals, he said.

Wheat, corn and rice futures rose to records last year, increasing food costs and sparking riots from Haiti and to Ivory Coast. Wheat prices lost 35 percent in the past year as global output reached a record 687 million metric tons in 2008-09, according to International Grains Council estimates, raising year-end stockpiles for the first time in four years.

“The remaining stocks are still quite tight,” Tracy said on June 12, forecasting the stocks-to-use ratio, the gauge of supply tightness, will be 23 to 24 percent at the end of 2009-10, compared with 19 percent in 2008.

“An appropriate level for the stocks-to-use ratio of wheat is 25 percent,” Nobuyuki Chino, president of Tokyo-based Unipac Grain Ltd. said today by phone. “If supplies fall below this level, we can say the market is in a tight situation. Wheat prices will probably chase a rally in soybeans and corn.”

Crop Yields

Wheat futures in Chicago fell 0.2 percent to $5.8375 a bushel at 10:34 a.m. Tokyo time. Prices rose to $6.77 a bushel on June 1, the highest since Oct. 2 on speculation rain may damage U.S. winter crop yields and delay spring planting. The prices are still down 4.4 percent this year compared with a 3.4 percent gain for corn and a 27 percent rally in soybeans.

“We are very close to the edge of supply-demand balance,” Tracy said. If production problems reduced crops in some countries, such as the U.S. or India, that “could tip the balance,” he added.

Tracy forecast wheat prices could range from $5 a bushel to $8 a bushel, without giving a timeframe. Prices could go beyond that level driven by investor demand, he said.

“If things begin to look a little tight, we will have many hedge funds buying wheat,” Tracy said. “That increases the volatility of the market.” Prices are unlikely to return to the record $13.495 reached Feb. 27, 2008, he added.

World wheat consumption will be “very high” in 2009-10 even amid a global recession, Tracy said.

“We see very little impact from economic changes on wheat consumption. It can actually go up as a result of switches to lower-cost foods in less-developed countries,” he said.

The Arlington-based market development organization for U.S. growers does not issue its own supply and demand outlook, Tracy said, adding that projections by the IGC are “quite good.”

The London-based IGC forecast on May 29 that world wheat production will drop 5.1 percent to 652 million tons in 2009-10 from a year earlier, while consumption will be little changed at 643 million tons. Ending stockpiles are projected at 167 million tons, up 5.7 percent from 158 million in 2008-09."