CHICAGO: US wheat prices took the biggest hit from the US Agriculture Department's forecasts for global grain and soy supplies as larger-than-expected wheat stocks sent the Chicago futures down nearly 1.7 percent.
The benchmark Chicago Board of Trade May soft red winter wheat contract, which was trending lower in choppy trade throughout the morning, initially turned higher after the report as traders reacted to a spike in corn prices and a domestic wheat stocks figure that was close to trade expectations.
But the market quickly took a negative turn as traders focused on the bearish global supply figures. Prices for May CBOT wheat hit their session low of $6.88 a bushel, down 20-3/4 cents, just three minutes after the report was released. MGEX spring wheat and Kansas City Board of Trade hard red winter wheat also retreated to session lows.
CBOT May wheat closed down 12 cents at $6.96-3/4 on Wednesday while KCBT May wheat shed 16-1/2 cents to $7.30 and MGEX May wheat was 15-1/4 cents lower at $7.84-1/2.
"The US numbers were very supportive," said Mike Zuzolo, president of Global Commodity Analytics & Consulting in Lafayette, Indiana. "But then they drilled down to the global ending stocks numbers, and (USDA) found more beginning stocks of world wheat. So the final number at the end of the balance sheet was up more than the trade was guessing."
Wheat was primed for a sell-off, having risen 5.7 percent in the week leading up to the report, supported by Chinese purchases of US supplies on the export market. The benchmark CBOT contract's 1.7 percent decline on Wednesday outstripped losses in corn and soybeans, which had seen only modest gains in the run-up to the report.
The government raised its estimate of global wheat ending stocks for the 2012/13 marketing year by more than 4 million tonnes to 182.26 million. That topped even the most bearish of analysts estimates of 180 million tonnes and beat the average of forecast in a Reuters survey by 3.71 million tonnes.
USDA said less corn and wheat were being used as livestock feed in China and the United States, the world's top two corn growers.
"In these high-price environment years we always underestimate how much grain demand is pulled down and how much end users try to either drawdown stocks or find substitutes to high-priced grains or alternatives," said Rich Feltes, vice president of commodity research for RJ O'Brien.
Additionally, the government altered the amount of wheat that countries held at the start of the marketing year, adding 2.91 million tonnes to that part of the balance sheet without providing further explanation. That move followed a widely questioned USDA report issued last month that said US corn supplies in early March were about 400 million bushels bigger than most traders expected.
The extra cushion in old-crop wheat ending stocks takes the market's focus off of concerns that a cold snap in the US Plains may damage some of the developing hard red winter wheat. USDA raised its estimate of old-crop hard red winter wheat ending stocks by 25 million bushels and cut its soft red winter wheat ending stocks view by 11 million bushels.
"I think people are looking and saying we've got more than enough wheat in the world, and there is no reason for worry," said Dan Basse, president of AgResource Co. "But gosh, I listen to my producer clients in the Plains, and they are talking about ice crystals in wheat. And I don't think that bodes well for longer-term production."
USDA rated the US winter wheat crop 36 percent good to excellent earlier this week, up 2 percentage points from a week ago but still the lowest for this time of year since 2002. Much of the crop in key growing areas such as Kansas has been stressed by low soil moisture since planting in the fall.
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