Wheat prices will be “skewed to the downside” next year as supplies are set to rise in the U.S., Australia, Argentina and Europe, said Macquarie Group Ltd.
“The big support that we saw in 2011, namely strong substitute demand growth for feed wheat due to high corn prices, will disappear next year as corn production rises,” Kona Haque, an analyst at the bank in London, wrote in an e-mailed report.
Supplies of “quality wheat” will be tight relative to availability of feed wheat, Haque said.
Corn prices are set to fall in 2012 on greater plantings, which should “significantly” boost production in the U.S., Macquarie said. Output in other growing regions is also likely to expand, according to the report.
“With the expected expiry of the ethanol tax credit and a possible weakening of feed demand due to lower meat consumption related to the sluggish economy, corn demand growth may ease and the market will become more comfortable from the second half,” Haque wrote in the report.
U.S. soybean planted area is poised to “lose out against corn” during spring next year, Haque said. She added that increased plantings in Brazil and Argentina would compensate for any shortfall in the U.S.
“Global fundamentals will be tighter than corn or wheat, especially if China picks up import levels, but price rallies will be capped by the bearish grains,” she added.