September 2, 2014
Bigger wheat crops forecast from Australia to Europe to Argentina
Surplus eases crop risks from Ukraine to the US. Inverntories in Canada to double to a two-decade high after output surged 38 % in 2013
CHICAGO — The world’s farmers are growing more wheat than ever, signaling to Goldman Sachs and Morgan Stanley that the biggest price rally to start the year since at least 1960 will soon end.
While drought erodes yields in the US and escalating violence threatens supplies from Ukraine and Russia, global stockpiles on May 31 will be 5.8 percent larger than a year earlier, the first gain since 2010, a Bloomberg survey of 15 analysts showed. Output will then rise to a record, even with smaller US and Black Sea crops, says Informa Economics Inc.
Farmers in the US, the top exporter, account for less of the world wheat trade after a decade of output gains in other countries, government data show. Canada, the No. 2 shipper, will see inventories double to a two-decade high after output surged 38 percent in 2013, and bigger crops are forecast this year from Australia to Europe to Argentina. Morgan Stanley said this week that ample supplies may mean price gains will stall, while Goldman in April forecast a drop of 24 percent by mid-October.
"We’re in a market that is being driven by fear at the present, and prices have been diverging away from fundamentals," Christopher Gadd, a commodities analyst at Macquarie Group, said in a May 2 telephone interview from London. "We are going to see a big harvest in the Northern Hemisphere, despite the losses in the US."
Wheat futures are up 21 percent this year on the Chicago Board of Trade to US$7.3175 a bushel Thursday. The Standard & Poor’s GSCI gauge of 24 commodities advanced 2.6 percent since the end of December, while the MSCI All-Country World Index of Equities rose 1.5 percent. A Bloomberg Index of Treasuries gained 2.7 percent.
In the 12-months that start June 1, wheat probably will drop to an average of US$5.50, as livestock producers use more corn in feed rations and inventories remain ample in Europe and the Black Sea region, Morgan Stanley said in a May 5 report. "Global inventories remain comfortable," Goldman analysts led by Jeffrey Currie said in an April 13 report, which forecast prices falling to US$5.60 in six months.
Record grain output
Global stockpiles on May 31 probably will rise to 186.8 million metric tons, the Bloomberg survey showed. That’s equal to 26.9 percent of estimated use, up from 21.1 percent in 2008, when prices reached a record US$13.495. Production in 2014-2015 will reach an all-time high for a second straight year to 713.1 million tons, including records in India and China, the biggest grower, Memphis, Tennessee-based researcher Informa told clients in a May 2 report. Supply will expand even with smaller crops in the US, Russia and Ukraine, which will account for 37 percent of world exports in the year ending May 31.
Grain production has never been bigger. Global supplies of wheat, rice and coarse grains including corn and barley rose 8.3 percent to 2.452 billion tons in the 12 months ending May 31, the USDA predicts. Outside the US, grain output will total 295.4 kilograms per person in the world, the most ever, and up 18 percent from a decade ago, agency data show.
"It will be awful hard to sustain rallies with global per- capita grain supplies at a record," said Michael Swanson, a senior agricultural economist for Wells Fargo & Co. in Minneapolis.
There’s still a risk of supply disruptions. US farmers probably will harvest the smallest winter-wheat crop since 2006 after freezes damaged yields and drought conditions persisted for the fourth straight year in the Great Plains, according to a Bloomberg survey of 20 analysts and traders.
Total domestic wheat output may drop 2.9 percent to 2.069 billion bushels, the least since 2011, while reserves before the 2015 harvest shrink 2.9 percent from a year earlier to 568 million bushels, the smallest since 2008, the survey showed.
Supplies are shrinking from "comfortable buffer stocks to snug instead," Dan Manternach, senior wheat analyst for Doane Advisory Services Co. in St. Louis, said in an e-mail. "With the ending-stocks outlook now snug, it will keep a weather premium in the market. The market will be extraordinarily sensitive to any crop problems."
Escalating tensions between Ukraine and Russia sent wheat prices to a 14-month high of US$7.44 on May 6. Russia is the world’s fifth-largest exporting country, followed by Ukraine. Violence spread to the Black Sea port city of Odessa, where dozens were killed on May 2 after Russian sympathizers seeking to escape clashes took refuge in a building later engulfed by fire.
Both countries supply Egypt, the world’s biggest importer, and have expanded market share as population growth, rising incomes and government policies boost wheat demand to Middle East and Africa, the USDA said April 9.
So far, there has been no evidence that exports are being disrupted from the Black Sea region, where crops are still two months from being harvested. Russia already has surpassed its plans to export 22 million tons of grain this agricultural year ending June 30, capitalizing on the devaluation of its currency and unrest in Ukraine, market researcher SovEcon said on May 6.
"Unlike previous recent years, where a decline in production triggered huge price rises because inventories were low, this time around, production goes down but inventories are pretty healthy," said Abdolreza Abbassian, a senior economist with United Nation’s Food and Agriculture Organization in Rome. The recent rally probably is temporary, he said. "We do not believe the situation is getting any tighter."
US corn supplies seen rising more than estimated
Corn inventories before the 2015 harvest in the US, the world’s largest grower and exporter, will rise more than analysts expected as production increased more than forecast.
Reserves on August 31, 2015, will reach 1.726 billion bushels from 1.146 billion forecast this year, the US Department of Agriculture said Friday in a report. Analysts in a Bloomberg survey expected 1.641 billion. Production in the season that starts September 1 will total 13.935 billion bushels, compared with 2013’s record 13.925 billion bushels (353.7 million metric tons) and the 13.736 billion forecast by analysts.
Corn prices jumped 22 percent in 2014 through yesterday as exports surged and record cattle and hog prices boosted demand for the grain in animal feed. Futures in Chicago fell as much as 2.1 percent after Friday’s report.
"The surprise is the larger increase in global corn supplies," Dale Durchholz, the senior market advisor for AgriVisor LLC in Bloomington, Illinois, said in a telephone interview. "Rising reserves is never bullish."On the Chicago Board of Trade, corn futures for July delivery fell 1.5 percent to US$5.0875 a bushel at 11:54 a.m., heading for the biggest loss in a week.
Global inventories before the 2015 northern hemisphere harvest, will total 181.73 million tons, up from 168.42 million forecast for the end of this marketing year, the USDA said. Reserves were projected at 162.2 million tons, according to the average of 14 analysts surveyed by Bloomberg News.
Corn is the biggest US crop, with a 2013 value of US$62.7 billion, government figures show.
World food prices fall as dairy to vegetable oil costs drop
Meanwhile, world food costs fell for the first time in three months in April as dairy, sugar and vegetable oil costs declined, the Food & Agriculture Organization said.
An index of 55 food items dropped 1.6 percent to 209.3 points from 212.8 points in March, the Rome-based FAO wrote in an online report Thursday. Prices are down 3.5 percent from a year earlier. An index of dairy costs slid 6.3 percent on increased production in New Zealand and improving prospects for output in the Northern Hemisphere, the United Nations agency said.
"The dairy market seems to be tempering on prospects of better supplies coming in," Abbassian, said in a telephone interview yesterday. "Production is rising, which I think is the market’s response to the higher prices that we had seen earlier in the year."
Class III milk futures on the Chicago Mercantile Exchange are down about 6.5 percent since reaching a record last month amid drought in California and increasing demand from China. Milk collection across New Zealand, the top dairy exporter, rose 6.3 percent in the 10 months through March, compared with the same timeframe a year earlier, according to Fonterra Cooperative Group Ltd.
An FAO index of vegetable oil prices dropped 2.8 percent in April to 199 points, spurred primarily by a drop in palm oil, according to Thursday’s report. Palm oil futures fell to a three- month low on Thursday in Kuala Lumpur amid rising inventories in Malaysia, the second-biggest producing country.
World sugar prices fell 1.6 percent in April to 249.9 points on FAO’s index, amid ample supplies from countries including Thailand, India and Australia, the agency said.