Harvests may lead to dip in wheat rates

Good wheat production prospects and better supply in major exporting countries could result in a modest decline in international wheat prices in the coming months, the latest global market analysis by the United Nations Food and Agriculture Organisation (FAO) indicates.

However, in the beginning of the new wheat season, the stocks in major exporting countries are still small and this factor is contributing to the continued price volatility in the world market, the report issued in Rome points out.

But the prices can come under pressure when the harvests begin to arrive in the market in the next few months. The US hard wheat (HRW-2) averaged $203 a tonne in May, down $3 from the April prices but still slightly above those prevailing in May 2006.

Wheat futures on the Chicago Board of Trade (CBOT) lost some ground in recent months as good weather conditions increased chances of larger harvests in the northern hemisphere, including the US. Wheat futures for September delivery at the CBOT were quoted at $186 per cent.

The FAO's latest forecast for world wheat output in 2007-08 stands at 629.6 million tonnes, up 5.2 per cent from the previous year. The production is anticipated to rise in Asia, Europe as well as North America.

The report has reckoned wheat production in India to rise above the trend and in Pakistan to be the highest ever. This would offset the reduction in wheat output in other parts of Asia, notably in China.

In Europe, the aggregated wheat output is projected to rise by 6 per cent. Despite relatively high temperatures, the standing crops are reported to be in a relatively better shape than last year.

In the US, harsh and freezing weather in April had created some uncertainty about wheat production prospects but it has since been realised that the damage would be much smaller than was feared earlier. Most of the crop is in good to excellent condition, the FAO points out.

The sowing of soft wheat crop in Canada is also progressing well but the area may decline slightly because of shifting of some acreage to relatively more lucrative crops.

In Australia, one of the top wheat exporters, timely arrival of rains has created conditions favourable for wheat planting. Wheat acreage is anticipated to increase this year and if the weather remains good, the output might rise substantially from the last years poor harvest.

Global trade in wheat is, however, projected to remain around 109 million tonnes, unchanged from the previous year's level. Wheat imports into Asia are predicted to decline by about 2 million tonnes due to smaller imports by India in 2007-08. Bangladesh may import at least 0.5 million tonnes because the government has removed the 5 per cent import duty on wheat.

China may also import marginally higher quantities due to the decline in domestic output. Total wheat inventories by the close of 2008 crop season are estimated at 147.5 million tonnes, down 1.5 million tonnes from already low opening levels.

The stocks held by major exporters are anticipated to rise by 5 million tonnes to touch 41.5 million tonnes, against the opening level of 36.5 million tonnes. Most of the increase will be in Australia where wheat production in 2007-08 is expected to rebound.