2010/08/11

Fwd: Wheat, Corn Stockpiles Dwindle as Russia Drought Curbs Output

---
Sent From Bloomberg Mobile MSG

+------------------------------------------------------------------------------+

Wheat, Corn Stockpiles Dwindle as Russia Drought Curbs Output
2010-08-12 00:00:00.0 GMT


By Jeff Wilson and Whitney McFerron
Aug. 12 (Bloomberg) -- The world's appetite for meat, flour
and ethanol is expanding faster than the supply of the crops
needed to produce them, eroding inventories and increasing the
chance of accelerating food prices.
Wheat stockpiles may slip to a two-year low as demand rises
and a drought damages Russia's crop, according to 17 analysts in
a Bloomberg survey. Inventories of corn, used to feed livestock
and make fuel, probably will drop to the lowest level since
2008, even as output tops a record, the survey shows. The U.S.
Department of Agriculture will update its forecasts later today.
Russia's worst dry spell in 50 years sent Chicago wheat
futures to a 23-month high on Aug. 6. Corn prices are up 24
percent in the past year, as ethanol mills use 35 percent of the
grain produced in the U.S., the world's largest exporter, and
rising global incomes lead to more beef and pork consumption.
"The world doesn't have enough exportable supplies to meet
demand" for wheat and feed grains, said John Macintosh, 61, a
vice president at Rand Financial Services Inc. in Chicago who
has been trading agricultural commodities since he was with
Continental Grain in 1973.
Russia, the world's third-largest wheat exporter, plans to
ban shipments starting Aug. 15 after concluding that its grain
harvest may plunge 38 percent this year to 60 million metric
tons. Dmitry Rylko, a director at the Moscow-based Institute for
Agricultural Market Studies, said yesterday that the estimate
may be cut further because of the worsening drought.

Food-Price Concern

While wheat prices have dropped 11 percent in the past four
sessions to $7.25 a bushel on the Chicago Board of Trade,
they're still up 58 percent since the end of May. In 2008,
record crop prices led to food riots and export bans from Haiti
to Egypt.
World food prices rose for the first time in three months
in July on higher costs for cereals and sugar, the United
Nations' Food and Agriculture Organization said on July 29. The
USDA said July 23 that meat prices will rise faster than
expected this year at 2 percent to 3 percent.
Premier Foods Plc, the St. Albans, England-based maker of
the Hovis brand, said Aug. 5 that higher wheat costs mean an
"inevitable increase" in bread prices.
Another food crisis is possible if wheat drives the prices
higher for other staples, according to Franciscus Welirang,
chairman of the Flour Mills Association in Indonesia, the
nation's largest buyer of the grain.
"There will be a domino reaction, and we expect corn
demand will rise, pushing prices higher, and feed industries
will buy more corn and soybeans," Welirang said on Aug. 6.
"It's the end of cheap wheat."

Ample Inventories

The wheat rally will need to last longer to boost costs for
consumers, according to Bill Lapp, the president of Advanced
Economic Solutions in Omaha, Nebraska, and the former chief
economist for ConAgra Foods Inc.
"I don't think it's going to immediately pass through,"
Lapp said Aug. 5. "It's been a dramatic increase, but you have
end users who have at least some inventory, and probably more
coverage than they had two years ago," he said. In February
2008, Chicago wheat futures jumped to a record $13.495 a bushel.
"We're going from an incredibly burdensome supply down to
just above normal, so this is not a shortage," said Rich
Nelson, the director of research at commodity broker Allendale
Inc. in McHenry, Illinois.
The USDA probably will cut its estimate of world wheat
inventories before the next harvest to 178.78 million tons from
last month's forecast of 187.05 million, according to the
Bloomberg survey. A year earlier, stockpiles were 193.02
million.

Fewer Exports

"Russia is going to cut back on exporting," which will
boost demand for supplies from the U.S., Canada and the European
Union, said Alan Brugler, the president of Brugler Marketing &
Management LLC in Omaha, Nebraska.
"The trade is guessing that the Russian wheat crop is
anywhere from 20 percent to 40 percent devastated," Allendale's
Nelson said. "At this point, we don't know what it's going to
be. They're into harvest in key drought areas right now."
A prolonged drought may further erode supplies by damaging
next year's crop.
"It has the potential to be very explosive the next five
weeks because by then we will know if Russia gets enough rain to
plant its winter-grain crops," Rand Financial's Macintosh said.
"It will take a miracle for Russia to get enough rain to get
winter crops fully established" before freezing temperatures
arrive at the end of September, he said.
"Russia is not going to let any food out of the region,"
he said. "Wheat, barley, corn, oilseeds, hay or potatoes that
were going to be harvested from July to October have been
severely damaged. No one is prepared for this shortfall."

Corn Stockpiles Drop

World corn inventories before next year's harvest probably
will slip to 137.94 million tons, down 1.2 percent from a year
earlier and the first decline since 2007, according to the
Bloomberg survey.
Last month, the USDA cut its estimate to 141.08 million,
citing a jump in U.S. ethanol use to 4.7 billion bushels, or 35
percent of estimated production of 13.245 billion bushels.
Global feed use was estimated in July at 492.9 million tons, up
1.3 percent from a year earlier.
Meat and dairy demand has grown more than any other major
commodity group since 1980, according to the FAO. Global meat
consumption totaled 41.2 pounds per capita in 2005, a 37 percent
increase from 30 pounds in 1980. Developing countries including
China and Brazil are eating twice as much as in 1980, at 30.9
pounds per capita, the FAO said.

Feed Use

In the U.S., it takes 11.9 bushels of corn, 143 pounds
soybean meal and 33 pounds of dried distillers grains to feed a
hog from birth to slaughter, said Altin Kalo, a commodity
analyst for Steiner Consulting Group in Manchester, New
Hampshire. Cattle eat 49.3 bushels of corn, 1.025 tons of dried
distillers grains and 0.362 tons hay to reach an 820-pound
carcass weight, Kalo said.
"The big wildcard is what the USDA is going to show for
corn production," Brugler said. "It's going to be a big
number."
The U.S. probably will harvest 13.255 billion bushels of
the grain, more than the government's July estimate of 13.245
billion and above last year's estimated record of 13.11 billion,
according to the Bloomberg survey.
"It's probably going to be the highest number of the
year," Brugler said. The USDA is "probably going to find more
ears per acre than they did last year, with record high ears per
acre."

For Related News and Information:
Top commodity stories: CTOP <GO>
Top agriculture stories: TOP AGR <GO>
Food prices: STNI FOODPRICES <GO>
Cash commodity prices: AGGP <GO>
Global wheat-crop calendar: CCAL WHEAT <GO>

--Editors: Steve Stroth, Michael Arndt.

To contact the reporters on this story:
Jeff Wilson in Chicago at +1-312-443-5938 or
jwilson29@bloomberg.net;
Whitney McFerron in Chicago at +1-312-443-5939 or
wmcferron1@bloomberg.net.

To contact the editor responsible for this story:
Steve Stroth at +1-312-443-5931 or
sstroth@bloomberg.net.