Wheat futures ended the month Wednesday at their lowest level since 2006, but analysts say a bottom for prices is finally in sight with global demand for the grain continuing to grow as plantings decline.
“Global wheat output is expected to exceed demand this year by about 10 million metric tons, or about 1.4%, and that is apparently enough of a supply overhang to bring wheat prices back” to a more than decade low, Sal Gilbertie, president and chief investment officer at Teucrium Trading LLC, told MarketWatch.
December wheat WZ6, +1.14% fell 4 cents, or 1%, to settle at $3.88 1/4 a bushel in Chicago. Prices, based on the most-active contracts, logged their lowest settlement since August 2006 and ended around 4% lower for the month, to tally a year-to-date loss of almost 17%, according to FactSet data.
Harvest pressure here and abroad, record [crop] yields in the U.S., a record crop in Russia are all weighing on the markets,” said David Maloni, president of the American Restaurant Association Inc.
Earlier this month, the U.S. Department of Agriculture raised its estimate on Russian wheat production for the current crop year by 7 million metric tons to 72 million metric tons, citing “[e]xcellent growing conditions throughout the country and harvest reports showing very high yields.” It said that Russia is expected to be the world’s largest wheat exporter for the first time.
For consumers, that’s good news. “Consumers could see some modest deflation in wheat-based products,” such as bread, said Maloni. But “I would not expect a lot of the wheat price decline to be passed along to consumers.”
“The 2016-17 domestic wheat crop is essentially in the bin. Southern hemisphere wheat crops will garner the markets attention in the coming months,” he said. “Look for domestic wheat plantings to decline in 2017-18.”
So there “may be more downside in the near term but we are looking for a longer-term bottom in the coming weeks,” he said.
Winter wheat is planted in the fall, goes dormant in winter and is harvested in the spring. Meanwhile, farm losses are mounting and wheat demand is on the rise.
Global use of wheat is up 3.2 million metric tons, led by a rise in use of the grain for livestock feed in Russia and the U.S., according to the USDA.
With total use rising faster than supplies, world ending stocks are down by 900,000 metric tons, but “still remain record large,” the government agency said.
“Large grain consumers should probably not get too complacent in the coming months, because current wheat (and corn prices) are at or below production costs in many areas, and demand for both is at record annual global levels,” said Gilbertie. That’s “a less-than-perfect formula for sustaining low prices for very long.”