In Russia, “soil moisture levels still remain low in some key growing southern areas,” whose drought this year has been a major factor in curtailing exports from a country which typically provides a source of ample competitively-priced grain.

Indeed, the weak exportable surplus of wheat in the former Soviet Union has “strengthened domestic prices of main staple wheat flour in importing countries”, contributing to a gain in world food prices last month.

‘Progressing well’

However, overall Russian sowings of winter wheat, which accounts for some two-thirds of the country’s wheat production, are “progressing well under generally satisfactory weather conditions”, the FAO said, flagging forecast of winter grains area remaining stable at about 16.8m hectares.

In neighbouring Ukraine, “planting got off to an early start, favoured by beneficial rains during [late] August in the majority of grain-producing regions”, the exception being some “key” southern areas, where soil moisture levels remain low.

Winter grain sowings are expected at an “average” level of 8.1m hectares.

In the US, the arrival of “much-needed” rains last month had improved soil conditions, the FAO said, flagging US Department of Agriculture data showing only a small lag in planting progress behind typical levels.

And in the European Union, the world’s biggest wheat producer, planting conditions “are generally favourable”.

‘Attractive option’

The decent conditions boded well for sowings at a time when elevated prices were giving growers a firm incentive to plant wheat, the FAO said.

“Wheat remains an attractive option for producers. Thus, weather permitting, [world] plantings are expected to at least match those of last year.

“This alone could result in a significant increase in next year’s global wheat output, assuming growing conditions return to normal in areas affected by drought in 2012, and satisfactory growing conditions in the other key producing countries.

“Very early indications for wheat crops in 2013 are encouraging,” after a 2012 harvest which the organisation pegged at 663m tonnes, a 5.2% drop year on year.

Area increase?

The comments follow a forecast last week by the International Grains Council that wheat harvested area for next season’s harvests would increase by 2.0% to 223.2m hectares.

“Winter wheat planting for 2013-14 is well underway in the northern hemisphere, and farmers are expected to increase sowings, driven by both firm prices and a recovery from the adverse weather conditions the previous year, notably in the former Soviet Union,” the council said.

Indeed, the IGC forecast a rise in sowings in Russia and Ukraine, as well as in Argentina, where plantings for 2012-13 fell to a multi-decade low as farmers switched to barley, for which the country’s export restrictions are not as severe, so opening up the potential for better returns.

‘Welcome rains’

Separately, Agritel on Thursday flagged improved sowing conditions in France, the EU’s top wheat producer, after an unfavourably dry period during the seeding window for rapeseed, which is planted earlier.

“The current rains in the northern part of France are warmly welcomed, with the beginning of winter wheat seeding,” the Paris-based consultancy said.

“These rains will partially offset the lack of rainfall observed for rapeseed sowing.”

In Russia, farm operator Ros Agro said on Wednesday it had completed sowing nearly 100,000 hectares of winter wheat.

SOURCE : Agrimoney.com

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Inventories to slump

In fact, Goldman forecast US wheat inventories dropping in 2012-13 to their lowest since 2007-08, factoring in Friday’s data and the prospect of enhanced export demand following drought damage to the Russian harvest.

“Given the tightening of the global wheat balance, we expect US wheat exports will be larger than currently expected by the USDA,” Mr Courvalin said, foreseeing inventories closing the season at 522m bushels, a drop of nearly 30%, and well below the current official US number.

And wheat futures were vulnerable to a spike if the trend of disappointing harvests continues, Goldman said, amid concerns over rain damage to the Argentine crop, and a drought hit to Australia’s.

“Another wheat crop failure would likely push wheat prices sharply higher and above corn prices to limit animal feed demand in the face of inelastic human food use,” he said.

“This in turn would likely shift wheat to being the leader of the grain complex.”

‘Prices will need to set new highs’

The bank forecast higher corn prices ahead too following Friday’s data showing US inventories of the grain lower than forecast, and stood by a forecast of $9.00-a-bushel corn on a three-month horizon.

“We reiterate our view that corn prices will need to set new highs and trade well above the current forward curve,” Mr Courvalin said, noting that US feed demand “remained remarkably strong” over the summer.

“The underlying level of corn feed demand is even more remarkable when taking into account the record high wheat feed demand implied by Friday’s low wheat stocks.”

However, the bank cut its forecast for corn prices on a 12-month horizon to $6.50 a bushel, foreseeing a “significant supply response” next year to the current high values, and also foreseeing some threat to the market from a weak pace of US exports and worsened dynamics in ethanol.

Stable US ethanol inventories, despite a drop in production, “suggests that exports have likely collapsed over the past few months, with imports of Brazilian ethanol up strongly as well.

“Absent a pick-up in net exports, we believe that current high ethanol inventories create downside risk to weekly ethanol production,” and with it pressure on prices.

‘Futures will recover’

Goldman also cut its forecast for soybean futures, flagging the boost to ideas in US supplies from teh USDA’s report on Friday, which also raised the estimate for last year’s domestic harvest.

With recent yields beating expectations too, “recent developments point to a slightly less severe soybean deficit than previously expected”, Mr Courvalin said.

However, with Chinese demand remaining strong, “current prices are not reflective of the tight soybean fundamentals, and we expect that prices will recover in coming months with US soybean export sales and shipments the key driver to this price rally”.

While soybean futures “will likely underperform” corn in the near-term, prices will still stand at $18.75 a bushel on a three-month horizon, eclipsing by some $0.80 the current record price.

source: Agrimoney.com

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