Strong demand is expected to keep shrinking US and global stockpiles of grain and oilseeds in coming months, a Chicago Board of Trade panel of analysts said on Wednesday.
The comments came after the US Department of Agriculture early on Wednesday issued its monthly world and US supply/demand reports, including USDA's first projections at season-ending stockpiles for the 2004/05 marketing year.
Analysts said the USDA confirmed trade thinking that supplies will remain tight into next year, keeping CBOT grain markets volatile but with bullish underlying fundamentals.
"Demand is expected to remain very strong for wheat and corn, and this will cut into carryout," said Jack Scoville, president and owner of JSL San Jose and San Salvador.
"They dropped US soyabean carryout to 190 million bushels for next year, so there appears to be very strong demand domestically and in the export market for soya," he noted.
USDA said new-crop US soya carryout as of September 1, 2005, would total only 190 million bushels, below the average of analysts' estimate for 211 million.
That estimate was above the USDA's projection for old-crop end-stocks in September 2004, of 115 million bushels, a 27-year low in US stockpiles.
Any significant weather problems this summer would quickly begin cutting into the 190 million bushel target, assuming that demand stays strong. Last year, drought cut US soyabean production by 12 percent to a seven-year low.
USDA on Wednesday also cut US old-crop corn carryout to 806 million bushels from its April outlook for 856 million and said brisk demand would cut new-crop corn ending stocks even further to 741 million bushels.
Demand for corn to make ethanol, which USDA estimated for the first time, was projected to rise to 1.3 billion bushels in 2004/05, up from 1.195 billion this year and 996 million in 2002/03.
The CBOT panel said the US corn stockpile could shrink to critically low levels if hot and dry weather sweeps through the US Midwest this summer. Corn, which reaches its key growth period of pollination earlier than soyabeans, escaped the brunt of last year's drought which peaked in August.
The USDA's wheat stocks numbers were mildly supportive to prices. USDA pegged US old-crop wheat stocks as of June 1, 2004, at 526 million bushels, below the 531 million seen in April. But USDA also pegged new-crop wheat carryout in June 2005 at an even lower 499 million bushels.
There are already strong signals that the new-crop wheat end-stocks may have to be cut further because 2004 US winter wheat output is being threatened by drought in the western US Great Plains hard red winter wheat region.
Vic Cook, managing director of Global Weather Services, said: "The wheat numbers are close to the market consensus. But the production number is based on May 1 conditions and since then, there has been further deterioration of the crop."
USDA's forecast of 2004 US winter wheat production at 1.550 billion bushels was about in line with expectations for 1.556 billion, but below last year's output of 1.707 billion.
Production of bread-quality hard red winter (HRW) wheat was also waning due to harsh weather and lower returns for growing wheat compared with corn or soya. USDA put this year's HRW output at 910 million bushels, down from 1.063 billion last year.
"Since May 1 the weather has not been favourable in the West Plains, and this points to additional deterioration of yields," Cook said.
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