Chicago, 7 February 2011

The U.S. Agriculture Department was expected to trim its forecast for wheat ending stocks as export demand remains firm even with prices trending near 30-month highs, traders and analysts said. Problems with crop production in Australia as well as the lingering effects of last summer's drought in the Black Sea region have boosted the role of the United States on the export market.

"They certainly could increase the demand side of the market for wheat," said Tim Hannagan, analyst for PFG Best. Analysts, on average, were expecting the USDA to forecast U.S. wheat stocks as of June 1, 2011, at 810 million bushels, 8 million bushels lower than its January outlook, according to a Reuters survey of 21 analysts.

World ending stocks were seen at 177.337 million tonnes, down from last month's estimate of 177.990 million tonnes. Before the drought in the Black Sea region and flooding in Australia that lowered the quality of the crop harvested there, U.S. wheat struggled to find a footing on the export market as cheaper supplies were available elsewhere.

But even a sharp price rally - the benchmark Chicago Board of Trade contract has risen nearly 13 percent since the last USDA WASDE report - has failed to ration buying on the world market.

NORTH AFRICAN DEMAND STRONG

Good demand for U.S. wheat from countries such as Tunisia, and expectations for more buying from top importer Egypt has improved prospects for U.S. supplies on the export market, a trend that is likely to continue in the future.

"The unrest in north Africa has added to the uncertainty among wheat importers and exporters as countries scramble to ensure supplies or protect domestic inventories," brokerage Country Hedging said in a research note. "While these developments increase the likelihood of higher exports going forward, an unchanged U.S. balance sheet is the most likely scenario this month."

USDA pegged U.S. wheat exports at 1.30 billion bushels in January for the 2010/11 crop year. A year ago, U.S. exports were 881 million bushels.

But the government may need more time to digest recent world events before changing its estimate of U.S. exports. "It is too early to make judgments on the north Africa situation," said Shawn McCambridge, analyst with Prudential Bache Commodities. "Maybe, there is potential to increase exports but maybe they will give another 30 days to let that settle down a little bit."

Ends --

By Mark Weinraub, Reuters  – for Commodities Now