Crop commodity prices set for fluctuating fortunes

Wheat supplies continued to remain strong with a “marginal increase” ​in global production estimates and a decrease in consumption expectations, according to the United States Department of Agriculture’s (USDA) World Agricultural Supply & Demand Estimates data report.

However, corn and soybean prices were likely to be impacted by increased consumption expectations for corn and lower global production estimates for soybean.

An overall downgrade in production forecasts was largely a result of unfavourable weather conditions in the southern hemisphere, claimed Phil Carroll, beverages and agriculture analyst at Shore Capital.

“The latest consumer price inflation report, published on 13 February, had inflation down by 0.1% from the previous period, to 4.0%. Given corn and soya are pivotal for animal feed, we expect this to be a slight inflationary pressure in the food supply chain, subject to industry hedging,”​ he explained.

“That said, we do not expect it to be sufficient enough to change our broader expectation of seeing food inflation fall in the coming months.”​

Wheat production figures​

Global wheat production figures for 2017/18 are forecasted at 758.8mt, a marginal increase of 0.54mt on the previous reported figure, primarily due to Kazakhstan upscaling production forecasts, Carroll said.

Wheat supplies remained unchanged from the previous publication with no material changes in expectations.

Overall, with total global production increasing and total domestic consumption declining, world-ending stock was expected to be 2.79mt higher than the USDA’s February forecast.

“As a result, we still believe wheat supplies remain plentiful with a stock-to-use ratio of 36.2% (record end stock level forecast of 268.9m tons) and slightly ahead of February’s ratio of 35.8%,”​ said Carroll.

Ending stocks for both corn and soybean were expected to decline by 3.92mt and 3.74mt respectively, implying a slight upward pressure on prices, Carroll added.

Yield forecasts were still expected to remain fractionally lower in 2017/18 compared with record levels in 2016/17.

“This is largely due to a disproportionate change in the area harvested and production levels,”​ Carroll said. “Stock-to-use ratios declined for corn and soybean to 18.7% (2016/17:21.9%) and to 27.5% (2016/17:28.7%) respectively.”​

Corn production largely unchanged​

The USDA forecast for March’s global corn production has been left largely unchanged at 1,042mt tons.

Continual adverse weather conditions in the southern hemisphere have negatively impacted the likes of Argentina, Carroll explained.

“Persistent heat and dryness has reduced yield prospects for corn planted at a later stage, coinciding with reduced yield results for corn planted in the earlier stages being lower than previously anticipated,”​ he added.

Global consumption was expected to be 6mt ahead of the previous forecast of 1,074mt. This was largely due to increased expectations for the EU (0.8mt), Brazil (1mt), China (1mt), with the remainder from Canada, South Africa and Brazil.

“Unchanged global production with increased global consumption expectations has resulted in ending stock declining to under 200mt. As a result, we expect prices to react to the tighter supply with some slight inflationary pressure,”​ Carroll said.

Global production expectations for soybean declined by 6mt to 340.9mt, a 1.7mt ton decline from the previous period.

“With ending stocks forecast to decline by 3.74mt to less than 95mt, we expect to see upward pressure on prices coinciding with corn prices and a reduction in supply availability,”​ said Carroll.

The USDA report was based on US production statistics but also provided estimates for global production and consumption figures.

Meanwhile, find out why food price inflation is expected to ease in 2018 by reading our exclusive interview with Shore Capital Head of research Clive Black in the March issue of Food Manufacture​​.