Wheat will touch a low in the next 60 days in Chicago before climbing on rising feed use and a slower pace of exports from the Black Sea region, said Mike Zuzolo, president of Global Commodity Analytics & Consulting.
“Wheat is going to bottom,” Zuzolo said at a grain-industry conference in Paris today. “The low in wheat should be just around the corner as we head into the New Year.’
The most-active contract has slumped 24 percent this year to $6.02 a bushel on the Chicago Board of Trade, and the grain was at a discount to corn for most of October and November. Wheat fell as investors’ focus shifted to demand concerns from supply issues, Zuzolo said in a presentation.
Wheat is the “price leader” for the global grain market because it sets a floor price for corn, he said. Wheat previously traded at discounts to corn in 1977, 1983-84 and 1996, according to Zuzolo.
“Very rarely do we see wheat go below corn in Chicago,” he said. “That is an anomaly. Once wheat goes below a certain price level, it becomes a price competitor with corn. Wheat can indeed, if supplies of feed wheat are high enough, take demand away from corn.”
Egypt, the world’s biggest wheat importer, has favored Russian supplies since the former Soviet nation let a ban on all cereal exports expire July 1 as scheduled. Russia may ship at least 25 million metric tons of grains in the current season, a record-high amount, Deputy Agriculture Minister Alexander Solovyev said today.
“Russian exports are likely to slow in February 2012,” Zuzolo said. “Competing supplies are becoming more competitive. We’re seeing that already.”
U.S. ending stocks for all wheat at the end of the 2011-12 marketing year will be 673 million bushels (18.3 million tons), according to Zuzolo’s presentation. Chicago wheat is overvalued above about $7.90 a bushel and undervalued below $5.45, he said.
U.S. farmers may switch some acres to soybeans from corn for spring planting if the price gap between the two crops widens, according to Zuzolo. Soybeans must trade at 2.15 times the price of corn for farmers to plant the oilseed rather than the grain, he said.
“Corn is still more profitable than beans right now in the U.S.,” Zuzolo said. Carryover stocks of the grain will be 838 million bushels, or 21.3 million tons, he said.
Soybeans are overvalued at $13.10 a bushel and undervalued at $10.90, according to the executive.
“At $13, I’ll still sell beans if the acreage is low, but I may scale back on the amount,” he said.