Wheat farmers buoyed by US forecast

US Department of Agriculture information about US grain crops has bolstered Australian farmers' expectations of good wheat prices for the coming season.

In the US, 25.8 million hectares will be seeded with wheat in the year to May 31, up 5.5 per cent from last year, the USDA has reported.

After reaching a record $US13.495 a bushel on February 27, wheat prices for US farmers have dropped 14 per cent this month.

Rabobank senior commodity analyst Luke Chandler said US wheat and soybean plantings would increase as expected.

He said that although prices had slipped from the record levels of the past month, they were still "at very high levels when looking at historical averages".

"They may not be at the extremes that we have seen over the past couple of weeks, but still at very, very high levels," Mr Chandler said.

He said that, if there were good planting rains in Australia over the next two months, there would be "a strong incentive for farmers to go out and plant wheat, given where prices are".

"So, provided they get the favourable weather conditions, we are expecting a bumper crop in Australia," he said.

The US is the world's largest wheat exporter. Australia, drought years aside, is in the top five.

Mr Chandler said the size of the US crop "is a major driver for commodity prices and for the overall markets throughout the year".

US production is expected to rise from 56 million tonnes last year to over 64 million tonnes this year. World wheat stocks are at 30-year lows.

"The US has basically been one of the only exporters that has been allowed to export over the last six to eight months," Mr Chandler said.

We have seen a number of countries such as Argentina, Ukraine, Russia, Kazakhstan all placing tariffs or quotas or bans on exporting wheat.

Consumers have been forced to go to the US to source their wheat and that has placed significant pressure on the US.

Two years of drought slashed Australia's wheat exports.

Mr Chandler is forecasting wheat will stay at around $US7 a bushel ($US257/tonne) throughout 2008.

The AWB yesterday put out its opening pool forecast for 2008-09, despite losing its monopoly status in July.

It is offering $400 to $420/tonne for benchmark APW wheat. This compares with $421 to $434 for 2007-08 and $243 for the previous year, before the soft commodities boom hit.

The long-term average is around $180/tonne.

The futures market on the ASX is listing $455/tonne for milling wheat for contracts closing in November, and $396/tonne for contracts closing early next year.

"Hopefully, if production rebounds next year, it gives (Australian farmers) an opportunity to really capitalise on strong world prices, following two very difficult seasons," Mr Chandler said.

But he did caution that southern NSW, Victoria, South Australia and some regions of Western Australia were dry.

Mr Chandler said corn plantings in the US were lower than expected, and said there would be very tight corn supplies in the US, and stocks-to-use ratio was expected to halve to only 5 per cent.

He said corn prices reacted quite bullishly to the USDA estimate.

"We have this burgeoning ethanol demand, which is expected to continue to increase to consuming 33 per cent of the US corn crop next year."

He said there had been a battle for acres in the US. The crop prices are almost trying to outbid each other to encourage farmers to go and plant more of that respective crop.

Last year all the major grain growing areas suffered climate damage.

"Even with good season conditions we are not expecting it to solve the problem in one season.

"This is here to stay for the short to medium term," he said.

The big loser has been cotton, which is down 13 per cent this year, after a 17 per cent decline last year.

The report follows Rabobank's confidence survey which earlier in the week indicated that Australian farmer confidence had rebounded strongly, due to expectations of favourable seasonal conditions and strong commodity prices.