World wheat surplus at mercy of weather, demand

World wheat stocks are set to recover this year thanks to a record crop, but the size of any surplus next season is hard to call because of uncertainty over demand in an ailing global economy and above all the weather.

Wheat stocks should mark their first rise in four years in the July/June 2008/09 season, easing the short-term risk of a return to the spiralling prices and food riots seen a year ago.

Leading forecasters like the International Grains Council and the U.S. Department of Agriculture expect the surplus to be well over 150 million tonnes this season, putting it back above 20 percent of total consumption — a ratio seen as adequate.

Projections for next year are extremely tentative at this stage but foresee wheat stocks keeping a reasonable cushion.

French-based analyst Strategie Grains anticipates a further build-up to 158-160 million tonnes, or nearly 25 percent of consumption, while Societe Generale estimates a contraction to 141 million tonnes, or 21.5 percent.

“The situation would be comfortable but not excessive,” Andree Defois, Strategie Grains’ chief analyst, said of her outlook, stressing stocks would remain well below a peak of 35 percent of consumption in the late 1990s, when prices slumped.

Market watchers are already banking on a 6 percent drop in wheat output in the year ahead as farmers sow less crop due to falling prices and with yields seen declining from 2008 highs. This lower but still-healthy level of production may not hurt stocks because demand growth is also seen easing as the world recession cuts the use of grains in a struggling meat sector.

Strategie Grains, for example, sees animal feed use of wheat falling by 13 million tonnes next year, and food consumption of the grain rising by only 1 million tonnes.

But the impact of the crisis is hard to judge when views on its depth and duration change by the day, analysts said.

The credit crunch is already expected to cause farmers to cut back on fertiliser use, thereby reducing yields, notably in countries like Ukraine, which have been hard hit by the crisis.

PARIS, Reuters