June 18th, 2013
Wheat futures may extend a slump in the year starting from July as farmers around the world are set to boost production and as demand declines for the grain in livestock feed, an Australian government forecaster said.
The price at Gulf ports for hard-red winter wheat, the most exported U.S. variety, may average $315 a metric ton in the 12 months from July 1 compared with $320 forecast in March and $348 a year earlier, the Australian Bureau of Agricultural and Resource Economics and Sciences said in a report. World output will probably gain 5.3 percent to 690 million tons, it said.
Wheat, corn and soybeans that surged as drought cut output in 2012 have tumbled into bear markets, helping ease global food costs. The U.S. Department of Agriculture estimates world wheat output will climb 6.1 percent as bigger harvests in Australia and Canada counter a smaller U.S. crop. The downside potential for crop prices is the biggest trading opportunity across commodities, Goldman Sachs Group Inc. says.
“For grain markets in general, it’ll be the first time in three or four years that the world will be building grain stocks,” said Paul Deane, an agricultural economist at Australia & New Zealand Banking Group Ltd. (ANZ) in Melbourne. “That’s the key reason why we’re looking at lower prices.”
Australia increased its harvest estimate last week after rains improved soil moisture. Output is set to reach 25.4 million tons, 2 percent more than a March estimate and compared with 22.1 million tons a year earlier, Abares said June 12.
Wheat Futures - Global Harvests
Farmers worldwide will harvest 695.9 million tons in 2013-14 from 655.6 million tons a year earlier, the USDA said June 12. A 6.6 percent increase from Canada and gains of 43 percent in Russia and 24 percent in Ukraine will counter an 8.3 percent drop in the U.S., the agency forecasts.
The rebound follows dry conditions last year that hurt harvests from Russia to Australia and pushed prices to $9.4725 a bushel on July 23, the highest level since 2008. Wheat for September delivery gained 0.4 percent to $6.9075 a bushel on the Chicago Board of Trade today. The contract is down 14 percent this year.
The “price decline largely reflects the combined effect of an expected increase in world wheat production,” Abares said. The outlook for higher corn production may reduce demand for wheat used in livestock feed, it said.
Wheat Futures - Corn Output
World corn output will climb 12 percent in 2013-14 to 960 million tons on a record U.S. crop, Abares said. U.S. farmers will harvest 355.7 million tons in the year beginning Sept. 1, boosting world output to the highest ever, the USDA estimates. While plants are maturing behind the normal pace after excess rain, the USDA said yesterday that corn crops were in better condition than in the previous week.
Global food prices have dropped 9.5 percent from a record 237.9 points in February 2011, data from the United Nations’ Food & Agriculture Organization show. Hard-red winter wheat, used to make bread, is the largest variety produced and exported by the U.S., the world’s biggest shipper, according to the USDA.
- Phoebe Sedgman in Melbourne at Bloomberg.