May 25, 2020
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Strategie Grains: Tight Wheat Market
5/14 8:46 AM

(Dow Jones) -- Strong demand for European wheat exports and damage to crops from dry weather will likely weigh on EU wheat stocks this year and next, driving tightness in the market which could support prices, said Strategie Grains in a report Thursday.

The French agricultural consultancy has cut its forecast for carry-out stocks for the 2019-20 agricultural year by 1.1 million metric tons to 12.6 million tons and also cuts the same forecast for 2020-21 by 2.2 million tons to 11.4 million tons.

Strong demand for European wheat exports was largely behind the changes to this year's forecast as Middle Eastern countries have ramped-up large scale purchases to fill strategic stockpiles, Strategie said. The group forecasts 34.3 million tons of EU wheat exports this year, 1.9 million tons more than its forecast last month.

For 2020-21, the reduction in stocks is driven by a cut to output forecasts amid concerns over dry weather damaging crops. Strategie cut its production forecast for next year by 2.1 million tons to 132.9 million tons. While some rainfall lately has eased worries most analysts believe more will be needed.

"This strong demand, combined with several weeks of weather setbacks... has reshaped the situation on our wheat balance sheet," Strategie said. As a result, the consultancy sees increasing tightness in the European wheat market, forecasting a surplus of 1 million tons this year and just 0.2 million tons next year.

Supply and demand were moving "to a just balanced situation in the EU and at the global level," Strategie said. While this wouldn't affect prices in the short term, it could generate "upwards pressure on prices once the harvest clearance phase is over."

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