Wheat futures proved particularly weak in 2015, falling 20% in Chicago.
Futures in rival grain corn fell by a more modest 14.5%.
Wheat’s underperformance reflected particular growth in world stocks, seen by the US Department of Agriculture as ending 2015-16 at a record 229.9m tonnes, after a series of strong harvests in major producing countries – including exporters such as the European Union and Russia.
Indeed, competition among exporters has been intense, driving prices lower and leaving the US, saddled with the burden of a strong dollar, looking at its lowest wheat shipments in some 40 years.
(Signally, Paris wheat prices fell by a more modest 14.5% last year, helped by weakness in the euro.)
Will the drop in wheat prices, now down 40% in Chicago since the end of 2012, continue for a fourth year? Or will the weaker values spur the production cutbacks, and demand boost, needed to stoke recovery?
ABN Amro
“As things stand, we do not foresee a marked upturn in fortunes for grains and oilseeds in 2016. Prices will remain at the current, relatively low levels.
“The latest monthly report of the US Department of Agriculture (USDA) confirms this outlook. The end stocks projections for wheat have been raised slightly to 230m tonnes, lifting the stocks-to-use ratio above 30% for the first time since 2009-10.
“The main factor driving this growth in stocks is the record production of 735m tonnes alongside reasonably stable demand of 717m tonnes.
“It is partly due to these enormous stocks that the wheat sown area is expected to be smaller in the coming season.
Citigroup
“All-wheat US balances remain heavy for 2015-16 with stocks at the 870m-bushel level and stocks-to-use breaking 42%. For a frame of reference, wheat markets may be ‘tight’ when the carryout ratio is below 30% so there is a cushion here.
“Wheat prices are thus unlikely to break-out above the $5.50-6.00 a bushel mark in the medium term although there appears to be cost support around $4.65-70 a bushel.
“US exports continue to lag on dollar strength. Sales developments will be critical to monitor going forward.
“Given expectations for a tight wheat premium to corn in 2016, and higher [animal numbers] for 2016-17, we see strong growth for wheat feed/residual and food use.
“All-wheat ending stocks in 2016-17 are projected to fall slightly below 800m bushels and stocks-to-use to scale back to a still robust 36%.
“For now, plantings next year are expected to fall by over 1m acres year on year to 53.2m acres given the glut in US and world wheat supplies. Sowing curtailment is expected to hit both hard and soft red winter wheat.
“Demand growth is expected to rebound, most aggressively for US exports, as year-on-year changes in a higher US dollar should moderate substantially in 2017.”
Commerzbank
“After improvements in moisture levels, the condition of US winter wheat plants is currently roughly comparable to the mean levels reported at this point in time in recent years.
“Early growing conditions in the most important wheat-producing EU countries are again mostly good and only a small decline on the recent record-high harvest is expected
“Due to high global availability and the strength of the dollar, we see little upside potential for the wheat price over the next few months, especially since the tightening on the corn market, which we had expected to support the wheat price, will probably remain limited.
“We see the Chicago wheat price at $5.10 per bushel in the January-to-March quarter of 2016 and at $5.20 per bushel in the October-of-December quarter of 2016.”
“The biggest risk factor for our forecast is a harsh and dry winter in important producer countries in the northern hemisphere.”
Darrel Good, Department of Agricultural and Consumer Economics, University of Illinois
“Three consecutive large wheat crops in the rest of the world have resulted in declining US exports and a build in year ending stocks of US wheat. US stocks are expected to exceed 900m bushels at the end of the 2015-16 marketing year.
“Some decline in US wheat acreage is expected in 2016 due to low prices, but a return to a trend yield would result in a larger crop and large year ending stocks.
“With most of the Illinois wheat crop sold at or shortly after harvest, the average price received for the 2015 crop will likely be less than $4.00 per bushel due to large quality discounts.
“An average near $4.75 per bushel is expected at harvest time in 2016.”
Morgan Stanley
“Better-than-expected global production should keep wheat prices in check in 2015-16.
“US stocks-to-use are poised to rise to six-year highs in 2015-16, as the elimination of drought from winter wheat areas in the southern Plains and favourable economics and weather for spring wheat planting lift all wheat production year on year.
“Global stocks are poised to build for a third straight year in 2015-16, as better-than-expected production in the European Union, the former Soviet Union and the US more than offset disappointing crops in Canada and India.
“US exports remain challenged, as hard red winter wheat delivered to major importers in the Middle East and North Africa is uncompetitive.
“Feed demand might improve, as prices weaken versus competing grains, mainly corn.”
Rabobank
“Global wheat stocks at the beginning of the 2015-16 marketing year have reached a four-year high, moving the stocks-to-use ratio to a comfortable 31%, which will keep prices rangebound.
“However, despite record wheat production in 2015-16, the quick growth of stocks over the last few years will likely slow down this season, as the current relatively low price level is expected to support decent global demand growth.
“We project wheat prices to remain almost neutral, and mainly above the $5-a-bushel level. However, weather-related production uncertainties could support prices.
“We project the just-planted US wheat acreage to be relatively unchanged from the 54.6m acres the previous season. After two years of relatively poor yields, a trend yield would still result in an increase in production and… stocks will be poised to grow further.
“Plantings in Ukraine and Russia faced dry conditions, resulting in some fields not being planted and crops once again facing winter in poor condition, increasing the risk of winterkill.
“Total Black Sea exports in 2016-17 could decline by as much as 5m tonnes, providing the chance for the European Union and other export origins to increase their exports again next season.
Societe Generale
“Chicago wheat prices continued to be pressured by comfortable global supplies and a strong dollar, limiting the demand for US wheat exports.
“Much of the malaise in the wheat market can also be attributed to the general ‘risk-off’ attitude towards the overall commodities space.
“As this pressure subsides and wheat fundamentals take over, we expect now prices to stabilise just below $5 a bushel in the longer term.
“We expect Kansas City hard red winter wheat to eventually regain its premium over Chicago wheat prices.”
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