Wheat: The Big Picture

The market seems slow to react to possibly the single most significant piece of information to emerge from yesterdays USDA report. That of sharply lower wheat plantings.

Not only was the acreage estimate lower than expected, it was much lower than even the lowest trade estimate at 42.09 million acres.

Quarterly wheat stocks at 1.422 billion bushels, 58 million more than the average estimate, and final carryout at 655 million bushels seem to be what the trade is concentrating on for now.

What people seem to be ignoring, or overlooking, is even though carry-over stocks are projected significantly higher this year, the stocks-to-use ratio is up only slightly from last year’s record low and is still well below the ten-year average.

The current stocks-to-use level provides a very small cushion for marketing year 2009/10 should production problems arise.

An arise they almost surely will.

With a 9% lower acreage in the US mirroring a similar 8% decline in Europe according to Strategie Grains' latest estimates, and Russian output forecast 10% or more lower, there is zero room for a serious weather problem in the northern hemisphere in 2009.

And that is before we start looking at lower yields on the back of reduced fertiliser inputs.