There’s a simple and obvious equation behind the constant decline in raw material costs across the grain and oilseed sector: plantings are up, the weather has been mostly kind and the planned bumper crops are coming through. Even more importantly, though, production is now growing more than most observers expected - and faster than demand.
Where else can prices go but towards ‘clearance’ levels?
Where that demand response lies has been an issue for lively debate from commentators over the past couple of months during which wheat prices have dropped another 14%, maize by almost, and soybeans by over, 20%.
Taking the drop from this year’s peak prices for these three commodities, wheat at the time of going to press is down by 25.6%, maize by 27.7% and beans by 23%. If we want to compare the price of soya as projected by futures for later in 2014, the drop is over 28%.
Back in May, world wheat output was projected at 697m tonnes – adequate to meet foreseen demand. Now it’s seen closer to 705m – just 7m off last year’s record (which exceeded demand by 7m too) after increases for most of the major producing/exporting countries as shown in the table 1.
Thanks to a bumper maize crop (see below), world wheat demand is expected to drop by
about 5.5m tonnes this season, mainly in North America, the Middle East, China and other East Asia. That’s despite a forecast 5m tonne rise in European wheat consumption on the assumption that a larger crop will boost feed demand. Is that realistic, though, as the EU remains under competitive supply/price pressures from another year of near record maize imports from eastern Europe – plus its own larger domestic crop?
World wheat import demand is also seen falling in the year ahead by almost 9m tonnes due to less going to China, Iran, Brazil and others.
Overall, world wheat stocks will expand by over 5m tonnes with increases concentrated within China, Europe, former Soviet countries and the USA.
That’s the summary of the bearish news for a wheat market whose bellwether Chicago futures contract for soft wheat still, somewhat surprisingly, portrays a 13% premium on prices going into 2015. The Paris milling wheat futures market also carries a premium albeit a far smaller one of about 3.5% going into the forward new crop months. It might be noted, however, that futures have been demonstrably wrong over the past six months about the direction wheat prices would travel, largely because they didn’t anticipate supplies of this magnitude – or the willingness of speculators to short sell the market.
Read more HERE.
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| John Buckley writing in the July-August 2014 edition (pg48) of GFMT |
Where else can prices go but towards ‘clearance’ levels?
Where that demand response lies has been an issue for lively debate from commentators over the past couple of months during which wheat prices have dropped another 14%, maize by almost, and soybeans by over, 20%.
Taking the drop from this year’s peak prices for these three commodities, wheat at the time of going to press is down by 25.6%, maize by 27.7% and beans by 23%. If we want to compare the price of soya as projected by futures for later in 2014, the drop is over 28%.
Back in May, world wheat output was projected at 697m tonnes – adequate to meet foreseen demand. Now it’s seen closer to 705m – just 7m off last year’s record (which exceeded demand by 7m too) after increases for most of the major producing/exporting countries as shown in the table 1.
Thanks to a bumper maize crop (see below), world wheat demand is expected to drop by
about 5.5m tonnes this season, mainly in North America, the Middle East, China and other East Asia. That’s despite a forecast 5m tonne rise in European wheat consumption on the assumption that a larger crop will boost feed demand. Is that realistic, though, as the EU remains under competitive supply/price pressures from another year of near record maize imports from eastern Europe – plus its own larger domestic crop?
World wheat import demand is also seen falling in the year ahead by almost 9m tonnes due to less going to China, Iran, Brazil and others.
Overall, world wheat stocks will expand by over 5m tonnes with increases concentrated within China, Europe, former Soviet countries and the USA.
That’s the summary of the bearish news for a wheat market whose bellwether Chicago futures contract for soft wheat still, somewhat surprisingly, portrays a 13% premium on prices going into 2015. The Paris milling wheat futures market also carries a premium albeit a far smaller one of about 3.5% going into the forward new crop months. It might be noted, however, that futures have been demonstrably wrong over the past six months about the direction wheat prices would travel, largely because they didn’t anticipate supplies of this magnitude – or the willingness of speculators to short sell the market.
Read more HERE.
The Global Miller
This blog is maintained by The Global Miller staff and is supported by the magazine GFMT
which is published by Perendale Publishers Limited.
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