Milling & Baking News - July 27, 2004 - 24

N E W S F E AT U R E
blunt some of the effect these conditions have had on prices."
Mr. Freed asserted, "I think the world information could override
the U.S. supply situation in the futures market. Futures markets
tend to be driven by export demand. If we don't have strong export
demand, the futures market will struggle, even if domestic supplies
are down, including hard red winter stocks. There will be no rally
to U.S. wheat if world wheat is bearish."

China as wheat market wild card

priced foreign wheat becomes available. And there is more downside in
corn and soybeans as we go through the growing season. Falling corn
and soybean prices and a weaker export picture should put pressure on
prices. We could see December Chicago wheat down to $3.35 a bu. The
Kansas City December price could drop down to the $3.60 area."

World wheat trumps smaller U.S. crop
Wheat production in the major exporting countries, excluding the
U.S., was projected at 189.93 million tonnes in 2004-05, up 21.42 million
tonnes, or 13%, from 168.51 million tonnes in 2003-04. Most of that gain
was derived from a dramatic recovery in European wheat production.
Wheat production in the 25 member states of the European Union
in the 2004 crop was estimated at 128.43 million tonnes, up 21.84
million tonnes, or 20%, from 106.59 million tonnes last year. The
U.S.D.A. in July projected E.U. wheat exports in 2004-05 at 15 million tonnes, compared with 9.8 million tonnes the year before.
Wheat production in the former Soviet Union also has recovered
from the drouth-reduced outturn of 2003. The F.S.U. crop this year
was projected at 81.79 million tonnes, up 20.38 million tonnes, or
33%, from 61.41 million tonnes a year ago. The U.S.D.A. projected
F.S.U. wheat exports in 2004-05 at 12.16 million tonnes, up from 9.33
million tonnes in the preceding year.
Meanwhile, U.S. wheat exports in 2004-05 were projected at 26.54
million tonnes (975 million bus), down 4.89 million tonnes (180
million bus), or 16%, from 31.43 million tonnes (1,155 million bus)
during the previous year. U.S. wheat exports in 2003-04 had been
the largest since 1995-96.
"Larger production in a number of foreign producers will continue to pressure prices," Mr. Meyers said. "E.U. and Russia and
Ukraine expect much larger crops after last year's problems with
drouth. Those larger crops will mean more exports, reducing demand for U.S. wheat. Also, the larger availability of wheat in Europe and the F.S.U. provides some cushion for any possible weather
problems in the Southern Hemisphere. There currently are some
dry spots in Argentina and Australia. But the larger European crops

24 / Milling & Baking News, July 27, 2004

China often has been known as a "wild card" in world wheat markets.
China is the world's largest producer and consumer of wheat. In the
late 1980s, China was the world's largest importer of wheat. But wheat
imports plummeted in the mid-1990s, down to just 195,000 tonnes in
2000-01, as the Chinese government allowed stocks to be drawn down
even as crop production decreased on a year-to-year basis.
A steady decline in wheat production and stocks slipping down
to 60 million tonnes at the end of 2002-03 triggered much more aggressive China wheat importing in 2003-04. China in that year imported an estimated 3.5 million tonnes of wheat. And the U.S.D.A.
projected that China would import 8 million tonnes in the current
year. It would be China's largest import total since 1995-96 and
make it once again the world's largest importer of wheat.
China was an active buyer of world wheat, including U.S. wheat,
last winter and spring but has been absent from the market for the past
few months. An open question was whether or not China already had
bought ahead its full needs for 2004-05, and if so, from whom.
"China wheat buying was definitely a factor in rising wheat
prices during the first three months of 2004," Mr. Meyers said.
"Most didn't expect them to buy 5 million to 6 million tonnes of
wheat (some purchased ahead for the current marketing year)
from the U.S., Canada and Australia. But since, they have stepped
back from the market, which has helped wheat prices drop."
Mr. Freed pointed to rumors that China already had purchased 10
million tonnes of wheat for 2004-05, mostly from Canada and Australia.
"Those purchases already have been priced in the marketplace," Mr.
Freed said. "If they are finished buying, and if they bought mostly from
Canada and Australia, and not from the U.S., the China demand actually could be bearish for U.S. wheat futures."
Mr. Meyers said he doubted that China was done buying wheat
for the year, and that when China buys more wheat, some of it was
likely to come from the U.S. "I guess one reason I think there is
more to be purchased is that China typically buys about 30% or
more of its import wheat from the U.S.," he said. "It still has 1.5 million tonnes purchased for 2004-05 to be shipped from the U.S. If it
had purchased 8 million tonnes for 2004-05 already, the U.S. share,
based on current data, would be only 20%. I would be surprised if
China had covered its 8 million tonnes without having purchased
more from the U.S., given the U.S. trade deficit with China. If that
8 million tonnes already has been bought, it would be bearish to
wheat prices. The U.S.D.A. export forecast for the U.S. can't be

bakingbusiness.com / world-grain.com

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Milling & Baking News - July 27, 2004

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