By G C Mays
The USDA lowered its estimate of global wheat (WEAT) ending stocks again after lowering production estimates for the European Union, Russia and FSU-12 as well as the US. The FSU-12 countries consist of the 15 independent states that seceded from the Union of Soviet Socialist Republics after its dissolution minus Russia, Kazakhstan and the Ukraine.
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The USDA lowered U.S. wheat ending stocks to 18.9 million metric tons and global ending stocks by 2.4 million metric tons to 185.8 million tons. Persistent drought conditions are wrecking havoc on crop conditions around the world. Russia's 3.0 million ton reduction in wheat production is due to protracted dryness in key producing areas in addition to winter freeze damage. Production cuts in the EU-27, or European Union is due to reduced acreage in Germany, Poland and Spain. Reductions in these countries are partly offset by gains in expected yields in France and Bulgaria.
As I mentioned when I wrote, "What Is Causing Fertilizer Stocks To Hit New Lows?", the stock prices of fertilizer companies like Mosaic (MOS), Potash Corp (POT), Intrepid Potash (IPI), Agrium (AGU) and CF Industries (CF) have recently had relatively low correlations to crop prices compared to the S&P 500 and EUR/USD exchange rate. The specific correlations to wheat are much lower with not a single stock having a statistically significant relationship to wheat.
Companies for whom potash sales make up a significant part of revenues like Mosaic, Intrepid Potash and Potash Corp typically have a more direct relationship with wheat prices over time than either CF Industries or Agrium. The debt crises has had a greater influence on all these stocks than the usual supply /demand fundamentals as dictated by weather and other forces.
This is only the second estimate of the 2012/13 marketing year and wheat ending stocks followed by exports have a higher margin of error than estimates of production or domestic use, especially this early in the new marketing year. Lower ending stock estimates are normally bullish for wheat prices. However, these are not ordinary times. For now wheat will not offer any insight into the future direction of fertilizer stocks. The S&P 500 and by extension, the EUR/USD exchange rate are driving fertilizer stock prices at the moment.