World wheat stocks tally should pressure prices

CHICAGO (B)--Analysts at the Chicago Board of Trade press briefing said that increased world wheat production and larger domestic ending stocks estimates by the U.S. Department of Agriculture in July 12's supply/demand reports should pressure wheat prices.

Burdensome ending stocks also should pressure corn, with Decembercorn expected to set a new contract low on July 12's opening.

"Today's world wheat production numbers really changed the structure of the world wheat market," said Terry Roggensack, analyst with the Hightower Report.

Dan Cekander, analyst with FIMAT Futures, concurred, stating, "World supplies are beginning to get away from us."

World ending stocks of wheat for 2000-01 were pegged at 114.06 million tonnes in July 12's report, almost 8 million higher than USDA's June estimate of 106.25 million.

There were substantial increases in production estimates for the EU, India, Pakistan and Canada, more than outweighing a decline in Chinese production.

A slight increase in U.S. production also should weigh on the market, as many analysts had been expecting a flat to slightly lower production estimate.

More problematic was a sharp increase in projected ending stocks of U.S. wheat for 2000-01, which surged to 947 million bushels, compared with 809 million in the June supply/demand report.

"We had been expecting at least a slight drawdown in stocks this year, but it looks as if we are back to ending stocks around last year's level," said Roggensack.

Cekander summarized, "The bottom line is a stagnant market continuing, at least for the short term, to test contract lows, pressured by burdensome ending stocks."

Roggensack predicted CBOT September wheat futures could test the $2.44-per-bushel range given the current supply/demand situation. September has traded as low as $2.46 so far July 12.

Analysts said the sharp increase in 2000-01 U.S. corn ending stocks to 2.182 billion bushels from USDA's June estimate of 1.859 million should pressure corn prices.

"This year will be a test of how well the current marketing loan system will handle such large free stocks," said Cekander.

However, Roggensack said the world stocks situation is not as bearish for corn as it is for wheat and soybeans. He noted, "Lower stocks in the hands of key importing countries could increase U.S. exports over the long run."

While USDA slightly increased 2000-01 world ending stocks of corn from 115.79 million to 116.48 million tonnes, total foreign stocks fell more than 7 million to 61.04 million.

Falling Chinese production potential was seen as a particular bright spot in an otherwise bearish report. The Chinese corn crop was pegged by USDA at 122 million tonnes, down 3 million from June, and both analysts said this figure could fall further in later reports.

"A crop of 115 million tonnes is possible, and this could lead to large Chinese imports," said Roggensack.

However, even if Chinese production falls, Cekander and Roggensack both noted this could be countered by even higher U.S. production.

"USDA is being conservative in keeping corn yields at 137 bushels per acre when the market is assuming yields of at least 140," said Cekander.