Published last week, the first data from the United States Department of Agriculture (USDA) on the US winter wheat area for harvest in 2016 revealed a 7% decline year on year to 14.8 mha.
News of the reduction in wheat plantings prompted a short-lived rise in prices – with May-16 Chicago wheat futures up by $4.41/t last Tuesday following the USDA announcement – but these fell back almost to pre-announcement levels by the end of the week.
Drop in plantings 'not surprising'
Industry insiders told BakeryandSnacks they do not expect to see major price rises in the coming months, with many suggesting the drop in planted area in the US was not surprising given the low prices for wheat for the past three years.
The strength of the dollar is putting “enormous pressure” on US farmers, said Erik Norland, executive director and senior economist of options and futures exchanges CME Group. He added that US exports are more expensive relative to the exports from other currencies.
“Canadian farmers are benefiting from a collapse in their currency, which is down 17% in the past year and down 32% in the past three years,” he added. “Roughly half the cost of running a farm is in local currency so this means Canadian farmers have cut their costs by about 15% relative to US farmers over the past three years and much of that has come during the past twelve months.”
Weakened currency in other wheat growing areas - notably the Ukraine, Russia and the Euro Zone – are also adding to the pressure on farmers, as were relatively high reserves.
US wheat prices were at a five-and-a-half-year low on the Chicago Board of Trade exchange last month, pointed out Mintec market analyst Loraine Hudson. Prices had risen 3% since the start of the year but this was not likely to be sustained, she added.
“Global production is forecast to increase in 2015/16 and global ending stocks are forecast up to a new record,” she said. “Although consumption is forecast to increase at a faster pace than production, the global wheat market is still in surplus.”
Stronger influence over global prices
Hudson added that the EU is the largest global producer, consumer and exporter of wheat and has a “slightly stronger” influence over global prices than the US.
“Without a weather event to affect these fundamentals I don’t see prices rising very much in the next few months,” she said.
In a bulletin published by the UK’s Agriculture and Horticulture Development Board last week, senior analyst Brenda Mullan stated: “The overarching fundamentals for 2015/16 haven’t changed from the bearishness that we’ve become accustomed to.”