Watch out for U.S. drought impact on wheat feeding

(Southwest Farm Press) – U.S. Wheat Associates (USW) President Alan Tracy is cautioning U.S. wheat farmers and the world’s wheat buyers to keep a close watch on how the deteriorating world corn supply situation changes feed wheat demand as 2012/13 progresses.

Speaking at the USW Summer Board Meeting on July 6, Tracy said U.S. corn production is likely to be much lower than what the U.S. Department of Agriculture (USDA) predicted at that time and that feed demand around the world will continue to siphon more wheat from milling supplies throughout the year.

Since his remarks, the relentless drought in the United States prompted the International Grains Council to lower its world corn production estimate from 917 million metric tons (MMT) to 864 MMT and USDA to reduce its world estimate from 950 MMT to 905 MMT, with expectations USDA will further trim its estimate on Aug. 10.

Corn supplies were already tight entering the 2012/13 marketing year because world consumption has increased 12 percent in the last five years while world production increased just 10 percent.

Nearly 60 percent of total world corn consumption is dedicated to feed use each year, but tighter supplies mean less corn is available to meet growing feed demand, forcing feeders to look for alternatives.

As was the case in 2011/12, feeders will likely rely more heavily on wheat this year than in prior years.

As of its July 11 World Supply and Demand Estimates (WASDE) report, USDA predicted wheat used for feed in 2012/13 will decline 16.8 MMT from last year’s record 147 MMT.

However, due to the tight corn situation and the availability of wheat stocks, USW expects eventual world wheat feed use this year to meet or even exceed last year’s record level.

Therefore, world wheat stocks will need to absorb the extra 16.8 MMT in consumption unaccounted for in the last USDA estimate. USDA will release its next WASDE report on Aug. 10, and USW expects it will increase global feed use for wheat.

In terms of export competition, feeding an extra 16.8 MMT is roughly equal to removing a major exporter from the market.

In 2010/11, the Russian export ban withdrew a comparable wheat supply from the market and sent prices sharply higher, leaving the other major exporters to fulfill the world’s wheat needs.

USW does not expect a similar “surprise” reaction this year to an increase in wheat feeding because prices are already high historically. However, USW does expect prices will continue to be high and volatile because there will be intense competition between the major crops for planted acres this fall and next spring. Buyers need to stay vigilant in order to take advantage of price dips as the volatility in the market allows.

Fortunately, the drought did not severely cut the U.S. wheat supply and, once again, millers and feeders around the world will be able to rely on both the quality and availability of U.S. wheat.

Although U.S. commercial wheat sales have lagged some in the first two months of marketing year 2012/13, in part, we believe, because of uncertainty over price movements, USW expects U.S. exports could reach 35.0 MMT, a recent high set in 2010/11.