Some U.S. poultry producers could be turning to lower-quality feed wheat as corn prices spike and oil-rich Middle Eastern countries continue to build wheat socks.
“We’re hearing lots of stories of lower-quality soft red wheat going into feed rations,” says Helen Pound, analyst with Penson Futures, Minneapolis. USDA’s commentary in its latest World Agricultural Supply and Demand Estimates (WASDE) also notes that poultry and hog producers in South Carolina and Arkansas are expected to reduce use of high-priced corn and feed more cost-effective rations that include soft red winter (SRW) wheat.
“Cash and futures prices for SRW wheat have recently dropped below those for corn on a pound-for-pound basis, creating opportunities for wheat to replace higher priced corn in feeding rations,” says USDA in the report.
The April 8 WASDE report shows global carryout on the 2010-11 wheat crop at 17 percent of use, up from 16 percent a month ago. World wheat consumption was reduced slightly from, down 800,000 tons from the previous estimate.
“There was not much change in wheat overall,” says Helen Pound, “World carryout is much tighter than U.S. carryout.” USDA pegs world wheat carryout at 160 million metric tons, up from 159 million metric tons last month. The U.S. wheat carryout is estimated at 839 million bushels, down from 843 million bushels.
Surprisingly, USDA left U.S. wheat export projections unchanged from last month’s report at 1.275 billion bushels. “U.S. export shipments have not kept pace with sales. There’s a lot of unsold wheat on the books that has not shipped,” says Austin Damiani, Frontier Futures, Minneapolis. “Analsyts were expecting a reduction in exports because of the difference in weekly sales and shipments.”
Wheat ending stocks are dropping in major exporting countries and regions such as Australia and the European Union and growing in the Middle East. “We’re seeing a shift in storage away from the exporters to the importers,” notes Pound. “Middle Eastern countries are using oil revenues to increase grain stocks.”
USDA also lowered wheat production in Egypt by 1.3 million tons due to expected lower yields from early-season heat, but raised Iranian production by 1.1 million tons. U.S. output was unchanged from the March report at 2.2 billion bushels.
Following the lackluster report, wheat traders have turned their attention to the ongoing drought in Kansas, Oklahoma, and Texas. “We are in a classic weather market,” says Damiani. “We need a soaking rain. There’s a chance for rain next week and everyone has their eyes glued to the forecast. Yield and abandonment are what we are worried about in the southern plains.”
Globally, dryness persists in the wheat growing area of China, but beneficial rains have relieved some of the concerns in former Soviet Union countries. “Canada, Australia, and to a lesser extent Kazakhstan will produce milling quality wheat,” says Damiani. “We could be looking at a return to normal production for the 2011-12 crop.” As production of milling quality wheat rebounds, it will reduce some of the pressure on the U.S. crop.
“If we don’t get rain for the rest of the month in the southern plains, wheat prices will probably move higher, led by the Kansas City market,” he adds. “With rain we could see a price correction.”