Milling & Baking News - July 27, 2004 - 25

reached if China doesn't buy more wheat. Even with China buying,
the forecast could be difficult to reach."
Mr. Meyers also pointed out that the U.S.D.A. in July raised its
projection for China's 2004 wheat crop by 2 million tonnes, to 87
million. If that projection were to be realized, China's wheat production would be up slightly from 86.49 million tonnes in 2003 and
end a four-year slide in the nation's wheat outturn. At the same
time, even with the larger crop, and 8 million tonnes in projected
imports, China's wheat ending stocks in 2004-05 were forecast to
decline 8 million tonnes from 2003-04, to 35.17 million tonnes.
While the U.S. wheat export projection was down from last year's
outflow, exports and sales to date this marketing year were running
ahead of last year's pace. "But the pace already has begun to slow
down a bit," Mr. Freed said. "Egypt isn't tendering every week.
And we have averaged only about 18 million bus a week in sales
during the past three weeks. Last year, there was a lull in late July.
But sales began to pick up in August and September. We sold about
30 million bus a week during those months a year ago. But August
and September will not be nearly as strong for U.S. exports this year,
as European supply is available in greater volume."
Mr. Meyers said even though U.S. export sales in June and July
were well ahead of last year, during September-May, export sales
could drop 25% from the year-ago interval because of increased
exportable supplies from the E.U. and F.S.U. Mr. Meyers said his
forecast for U.S. 2004-05 wheat exports was 950 million bus, or 25
million bus less than the U.S.D.A. projection.

Whither corn goes?
The U.S.D.A. in its July supply-demand data projected U.S. corn
production in 2004 at a record-high 10,635 million bus, up 521 million bus from 2003.
Mr. Freed said some analysts don't think the corn crop will be as
large as the U.S.D.A. forecast, but that the outturn could be close to
the projection. "Illinois corn looks to be the best ever, and the Nebraska crop looks outstanding as well," Mr. Freed said. "The only
concern seems to be the northern tier states of Minnesota, Wisconsin
and Michigan, where rain has been excessive. Three-fourths of the
Illinois crop already has pollinated."
Corn futures prices have dropped nearly 65c a bu for the December contract and 70c for the September contract since early June.
This tumble has pressured the wheat market.
"The wheat/corn spread has stayed wide during the past couple of
months," Mr. Meyers said. "The wide spread has discouraged wheat
feeding. Under these conditions, it seems the U.S.D.A. projection for feed
and residual use of wheat at 200 million bus is a reasonable number.
"There are quality problems with the soft red winter crop and
even with the hard red winter crop in Nebraska. Some of this wheat
will move into feeding rations. But in the end, 2004-05 wheat feeding should not be much different from the year before, when 217
million bus of wheat were fed to livestock. Once the corn crop is

harvested, there will be very little wheat feeding."
Mr. Freed said there might be more localized wheat feeding
where there have been quality issues. "But there isn't much room
projected in the carryout for us to feed a lot of wheat," he said.
Mr. Meyers suggested corn futures prices could decline another
15@20c a bu during the next three months. Mr. Freed said corn
downside could approach 25c a bu.
"If corn futures prices drop to $2.25 a bu, wheat could go down to
$3.50 in Kansas City, allowing for the current spread between Kansas City wheat futures and Chicago corn futures to be maintained
at about $1.25 a bu," Mr. Freed said. "As long as corn futures prices
continue to move lower, a post-harvest rally in wheat is unlikely.
In any given year, there is a 50-50 chance that corn makes its low in
August. If corn makes its low in August, maybe then wheat could
move up. But we will need more than fund short covering to make a
rally. We will need a weather scare or unexpected export demand."

Booking strategy through 2004
Current prices are not bad levels for bakers to have their flour needs

bakingbusiness.com / world-grain.com

Milling & Baking News, July 27, 2004 / 25

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