Grains Outlook for January 28, 2011: Wheat

Wheat prices soared to a 2-1/3 year high as they broke out above their 5-month consolidation range.  Bullish factors include (1) increased foreign demand for US wheat supplies after floods in Australia and Canada reduced their wheat quality while drought in Russia and Eastern Europe slashed their wheat production, (2) USDA's Jan 12 cut in its 2010-11 US carryover estimate, (3) speculation that adverse weather in Australia, China and the US will curb global wheat production this year, and (4) speculation that more US wheat may be used for animal feed as record US ethanol production absorbs corn supplies.  Bearish factors include (1) the USDA's unexpected Jan 12 hike in its 2010-11 global wheat carry-over estimate to 177.99 MMT from last month's estimate of 176.72 MMT, and (2) the increase in US winter-wheat plantings this year to 40.99 mln acres, up +9.8% y/y.

Weekly US wheat exports (week ended Jan 20): 670 MT; cumulative 2010/11 (June-May) all-wheat exports: +43% y/y.

Fundamental Outlook-Medium-term Bullish -Wheat prices broke out above their 5-month consolidation, posted a new 2-1/3 year high, and turned the trend to bullish.  Foreign buyers are flocking to US wheat due to very low European and Russian supplies and quality issues for Canadian and Australian supplies because of flooding.  Increased US winter-wheat plantings are a near-term negative, but adverse weather in the US and Australia and a lack of Russian exports is supportive.  The US wheat supply situation remains above-average with the US stocks-to-use ratio at 35.2%, but the global stocks-to-use ratio of 26.5% is tighter and is near the decade average.

(Source: http://www.insidefutures.com/article/212861/Grains%20Outlook%20for%20January%2028,%202011.html)