23 August 2017

Not Even Wheat Is Safe From the Bears of the Agriculture Markets

The agriculture markets are turning bearish, and there’s no exception for wheat, the darling of traders earlier this summer.

The U.S. government surprised the market last week by boosting its outlook for global inventories to a record, amid bigger-than-expected harvests in Russia and neighboring nations. The prospect of another season of ample supply has sent prices plunging. Soft red winter wheat futures for December delivery slumped to $4.56 a bushel on Tuesday on the Chicago Board of Trade. That’s down 21 percent from a recent closing high on July 5, meeting the common definition of a bear market.

Prices of spring wheat, the high-protein grain used in pizza dough and bagels that reached record highs a month ago, are also taking a nosedive on the Minneapolis Grain Exchange. Since a close peak on July 5, the December futures contract has fallen about 17 percent, extending declines since the government issued its latest production estimate on Aug. 10.

"Money is flowing out of all the commodity markets," Joe Vaclavik, president of Standard Grain Inc. in Chicago, said in a telephone interview. "The spring wheat production number didn’t come down nearly as much as the bulls in the market would’ve liked."

Grain volatility surged this summer amid shifts in the weather outlook, and prices moved up and down with the rain forecasts. Drought in the northern reaches of the Great Plains had especially threatened production of spring wheat, but the U.S. Department of Agriculture’s report last week quelled supply concerns.

The trend was echoed for corn and soybean yields, which were higher than analysts surveyed by Bloomberg expected. Since the report, corn, soy and wheat futures have all fallen, and the Bloomberg Agriculture Index dropped to its lowest since December 2008 on Tuesday.

The plunge in wheat prices may be sparking the interest of global buyers. Egypt, the world’s largest importer, is said to be seeking to buy wheat in a Wednesday tender. Groups in Tunisia, Philippines, Thailand and Iraq were also said to issue tenders for the grain in the past week.

Outside of the U.S., December milling-wheat futures in Paris are trading near a contract low and export prices in Russia fell to the lowest since June 30 last week. Russia is expected to regain its position as the world’s largest shipper of the grain this season, according to the USDA.

Source: https://www.bloomberg.com