WORLD MARKETS AND TRADE:

COMMENTARY AND CURRENT DATA

WHEAT: WORLD MARKETS AND TRADE

The world wheat market is forecast to remain tight in 2007/08 despite a substantial boost in production. Global consumption is projected to rebound slightly, with high prices expected to restrain growth and import demand. Global trade is thus forecast nearly unchanged year to year. With consumption expected to outstrip production, global ending stocks are forecast to fall to their lowest levels in 25 years.

A key factor for the world wheat market is reduced exportable supplies in several major exporters. In the EU-27, dryness has hit wheat crops, with total production only expected to be slightly above last year’s below-average harvest. Sharply reduced carryin stocks, however, including depleted intervention stocks, could mean less exportable supplies, especially if the Commission finds it necessary to restrict exports in order to dampen high domestic prices. Argentine exports are also forecast to fall as production shrinks because acreage is shifted to more profitable crops. Canada is expected to reduce shipments as stocks were drawn down significantly this past year and new crop production is expected smaller. Wheat area is likely to shrink in favor of canola.

Less exportable supplies from those countries, however, will be partially offset by expected big wheat crops in Russia and Ukraine. Russian exports are forecast at near record volumes, and will likely displace reduced EU shipments into key Mediterranean markets. Russia has become the largest supplier to Egypt during the past two years, and that will likely continue. While Ukrainian exports in 2006/07 were curtailed by government export quotas to protect tight domestic supplies, a bumper harvest should alleviate that concern and provide much more grain to be exported, especially to the European Union.

Australian exports are forecast to jump on a recovery in production from last year’s drought ravaged crop. However, that supply will not be available for another 6 months when the new crop is harvested. As always there is a lot of uncertainty regarding the size of this crop and it will likely be a major factor for the global market.

United States production, especially for hard wheats, is expected to be more abundant, and exports of these wheats will benefit from reduced competition from high-protein Canadian and European supplies. U.S. soft wheat, however, will face intesified competition from the large Black Sea region crops. Overall, exports are forecast higher and U.S. market share is expected to rise.

India is expected to continue to be an important importer this coming year, although volumes are likely to be smaller as a result of a larger domestic harvest. However, government procurement is down as farmers reportedly hold supplies for higher prices. The government has consequently already taken the unusual step of opening a million ton import tender even though the domestic harvest has only recently been completed. Elsewhere in Asia, imports by China and Pakistan are expected to be relatively unchanged at fairly low levels and both of countries will continue to be net exporters.

With greater supplies of feed-quality wheat from the Black Sea region available, markets such as EU-27 and Israel are expected to boost imports. European Union import quotas for low and medium quality wheat could be completely filled this coming year, as opposed to 2006/07 when there was a dearth of Ukrainian supplies during the second half of the season.

North African imports are expected to rise, driven by a much smaller crop in Morocco where conditions have been dry. Egypt is expected to purchase slightly more wheat, and regain its spot from Brazil as the world’s largest wheat import market.

In the Western Hemisphere, less import demand is expected for Brazil as high domestic prices stimulate acreage expansion and production. Imports, however, will still remain at the second highest level in 6 years and will likely account for the vast majority of Argentina’s exports. Mexican imports are forecast largely unchanged, although with a larger Hard Red Winter crop U.S. sales could replace some Canadian sales. United States imports are estimated down from last year, primarily as a result of smaller soft wheat imports expected from a short crop in Ontario.

Domestic: For April, Hard Red Winter (HRW) and Soft Red Winter (SRW) prices jumped on the recent US Easter freeze, but eased on reports of improved crop prospects. For the month, HRW rose $7 per MT, with Hard Red Spring (HRS) up $7, SRW up $26, and Soft White (SWW) up $3.

• Argentina is up 500,000 tons to 10.5 million on continued strong shipments.

• Bangladesh is down 200,000 tons to 1.9 million on slow import pace.

• Sudan is down 200,000 tons to 1.2 million on sluggish imports.

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Last modified: Friday, May 11, 2007