Swelling global stockpiles pound wheat

Wheat was the top loser among all commodities last week, losing nearly 8 per cent of its value. Prices have dropped another 2.5 per cent this week. The losses have resulted in wheat prices dropping a little over one per cent so far this year.

If the 14-month high of $7.44 a bushel on May 6 is taken into account, then wheat has lost over 10 per cent since then.

Crop size On Thursday, wheat futures seemed to recover a bit, rising to $6.67 a bushel for the benchmark July contract on the Chicago Board of Trade.

The drop in prices has come despite the US Department of Agriculture estimating that global wheat production during the crop year 2014-15 starting July will drop 17 million tonnes (mt). At least 25 per cent of the drop is projected to be from the US.

Despite this, world wheat crop at 697 mt will be the second record highest. Ending stocks, though lower, are expected to be higher in the US at 583 million bushels (15.86 mt). Stockpiles in Canada, too, are expected to double, the highest in two decades.

According to the USDA, while opening stocks during 2014-15 is expected to be 172.7 mt, ending stocks are estimated to be 187.4 mt. For this year, opening stocks were 170.7 mt.

“With marginally larger foreign wheat supplies and a decline in foreign use, ending stocks are projected to increase for the third year in a row. Foreign ending stocks are projected to reach 172.7 mt, slightly up on the year, while world wheat ending stocks are projected at 187.4 mt,” it said.

Reduced imports Opening stocks for the next season are likely to be higher in China, where the Government is accumulating inventory, Argentina, Canada (both record high production) and Iran, which built stocks this year after exhausting them last year.

In India, wheat stocks are likely to be lower as some six mt have been exported this season.

Global wheat trade in 2014-15 is projected to fall to 151.6 mt, down 6.8 mt from the record wheat trade this season. Higher wheat output in a number of importing countries and reduced feed demand in response to costlier wheat relative to corn prices are expected to result in reduced imports of the grain, limiting global wheat trade.

“The projections are based on the assumption that the current situation in Ukraine has little disruptive effect on global grain trade,” the USDA said.  All these have resulted in a bearish outlook for wheat, resulting in the fall.

Rain factor The other reason for the market to pound wheat last week was rainfall in growing areas that is expected to help overcome dry conditions.  Traders speculated that the rains will benefit 75 per cent of the winter crop in the Great Plains. On the other hand, warmer, drier weather projection in the far north will aid planting from Minnesota to Saskatchewan.

In line with the bearish outlook, funds are exiting long positions in wheat futures. The development comes after hedge funds and other large speculators held net bullish bets of 45,265 futures and options contracts as of May 6, the most since November 2012.

In the domestic market, spot wheat prices at Kanpur have been ruling steady at ₹1,540 a quintal this month. However, prices of July contracts on the National Commodities and Derivatives Exchange dropped to ₹1,570 on Thursday from ₹1,640 on May 9.

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