What a difference two months make.
As of Dec. 1, 2012, export sales of soft red winter (SRW) wheat lagged behind the 2011/12 pace by 9 percent. On Dec. 11, the U.S. Department of Agriculture (USDA) projected total 2012/13 SRW exports would reach 3.95 million metric tons (MMT), 18 percent lower than last year’s mark.
But in just 60 days, SRW wheat sales have soared and indications are the accelerated pace could continue for at least the next few months.
The catalyst for the change was SRW prices falling below the competition for the first time in six months. Wheat buyers noticed and sales of 1.27 million metric tons (MMT) since December put 2012/13 SRW sales to date at 3.06 MMT, notably 27 percent above last year’s pace.
Egypt has been the most aggressive customer, accounting for almost half the December and January sales. On Monday, (Feb. 4) Egypt’s General Authority for Supply Commodities (GASC) announced it had purchased an additional 60,000 MT of SRW for March delivery.
Bids on this GASC tender for U.S. SRW ranged from $307 to $324/MT free on board (FOB). The closest competing offer was for French wheat at $355/MT.
That large price spread suggests SRW has competitive staying power.
In its January World Agricultural Supply and Demand Estimates (WASDE), USDA increased its projected SRW exports by 400,000 MT to 4.35 MMT, just 3 percent lower than 2011/12 and 1 percent greater than the 5-year average.
The February WASDE was released Feb. 8.
Despite surging demand, SRW prices remain relatively low. Optimism surrounding the 2013 harvest is also encouraging the sale of old crop stocks in order to make room for the new crop.
SRW basis levels have remained steady or weakened in the past few weeks, allowing FOB prices to fall with the futures market and fuel sales. Traders are confident they will be able to refill the supply with new crop.
USDA’s winter wheat seeding estimate released Jan. 11 certainly supports that sentiment. USDA said farmers seeded 9.42 million acres (3.81 million hectares) of SRW, up 16 percent from last year because of higher prices and poor spring crops in parts of the Midwest.
That includes a record 960,000 acres in North Carolina and an estimated 27 percent increase to 1 million acres in Missouri. Ohio’s seeded area is up 24 percent to 620,000 acres and Arkansas farmers seeded 20 percent more, up to 660,000 acres.
Growing conditions in SRW growing regions that have been much better than in hard wheat growing areas are strengthening the potential for a large 2012/13 SRW crop.
The positive crop outlook could help maintain the relatively low SRW prices that have spurred sales in the last two months.
Current SRW supplies are more than sufficient to meet the additional demand and sustain the increased sales pace.
USDA currently projects SRW carry out stocks at 4.58 MMT, 2 percent greater than the 5-year average and 35 percent greater than the 10-year average, providing a comfortable cushion for additional exports.