Falling from 86 days of cover predicted in December, the US department of agriculture (USDA) said last week that global wheat stocks should drop to 82.3 days of forward cover on the back of a 145.5 million mt stock pile. This figure compares to 1999/00 when cover hit 131 days.
Reflecting the vulnerable stock levels, investment bank Goldman Sachs believes current prices for wheat, 357cts/bu, are exposed to rises.
"Current prices are, in our opinion, too low given the absence of sufficient stocks to buffer any surprises to supply or demand," they comment this week.
The bank cites rebuilding of inventories in places like China and the Australian harvest impacted by a long period of dry weather as contributing to the upside price risk.
Wheat, along with corn and soy, are the starting point for a range of food ingredients, from starch to gluten, used widely in food applications. But food makers and ingredients firms across the world have been affected by rising prices for basic food commodities.
In each of the last four years world grain production has fallen short of consumption, forcing a draw-down of global stocks for wheat, rice, corn and soybeans to 30-year lows. Soybean prices recently hit 15-year highs and wheat and corn seven-year highs.
But there were signs at the end of last year that stocks would improve on 2004 harvests. Cautious optimism reflected in data from a recent report issued by the UN-backed Food and Agriculture Organisation (FAO) predicts world cereal production will hit a record 2.04 billion tonnes in 2004, an increase in inventories for the first time in five years.
Prices are under less pressure today as global crops improve. The USDA predicts that soybean production has risen to 112.4 days of forward coverage for 2004/05 on world production of 250k mt, with a major boost from Brazil crops.
Soy prices rose recently on the discovery of soy rust in several US states but Goldman Sachs believes this constitutes 'little near-term risk' to the balance because it occurred too late in the season to have any real impact on the 2004/05 corp.
"We believe that the high levels of global coverage would provide ample buffer in the event that soy rust significantly damages the 2005/06 US crop," the bank commented.
Global stocks for corn continue to recover, and despite still being near 30-year lows, the US stock level is at the upper end of the range for the past decade. Projected global ending stocks from the USDA put the crop at 3.3 million mt, leaving stocks to ration at just under 52 days of forward cover.