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Wheat May Take Over From Corn as Grain Market Driver, FAO Says

December 06, 2012

Wheat May Take Over From Corn as Grain Market Driver, FAO Says

Wheat has climbed 31 percent this year to $8.555 a bushel this year on the Chicago Board of Trade as corn added 16 percent and soybeans jumped 23 percent. Photographer: Daniel Acker/Bloomberg

Wheat may take over from corn as the driver of grain prices next year because of potential production setbacks, said Abdolreza Abbassian, an economist at the United Nation’s Food & Agriculture Organization.

“People are perhaps a little bit underestimating the problems we could have with wheat,” Abbassian said by phone today from Rome. “We could end up in a situation where we see wheat leading and others follow if we see a problem in the Black Sea putting pressure on U.S. supplies.”

Corn and soybeans set records this year and wheat is 37 percent below its all-time high in 2008. Wheat is the biggest gainer of the 24 commodities in the Standard & Poor’s GSCI gauge as drought is diminishing yields from Australia to the U.S. and Russia braces for its coldest winter in 20 years.

“If this year was marked by corn leading, 2013-14 could be wheat,” Abbassian said.

Wheat has climbed 31 percent this year to $8.555 a bushel this year on the Chicago Board of Trade as corn added 16 percent and soybeans jumped 23 percent. Wheat’s record is $13.495 a bushel in February 2008.

Abbassian said there are concerns about wheat conditions ahead of winter dormancy in Russia, the U.S. and Europe, particularly the U.K., as well as worries about Argentina’s wheat and corn harvests this season.

Crop Conditions

Farmers in southern Russia planted winter wheat into parched soils, while drought left the U.S. crop for harvesting next year in the worst condition in at least 27 years. Excessively wet soils slowed seeding in the U.K., the European Union’s third-biggest grower.

“For the U.S., the news is not good anyway, with the dry conditions continuing,” Abbassian said. “There are uncertainties about the wheat next year. We’re talking February or March before we get a firmer idea. Spring is going to be a crossroads of prices going either sharply up or down.”

World wheat production is predicted to fall 5.9 percent in the season through June to 654.4 million metric tons on smaller crops in exporters including Ukraine, Russia and Australia, according to the International Grains Council. The output drop of 40.8 million tons of wheat equals 30 percent of expected world imports of the grain in 2012-13, IGC data show.

Abbassian said he’s concerned about Argentina, where rain is damaging wheat and delaying corn planting.

Ukraine Outlook

Wheat price swings in reaction to reports that Ukraine will restrict wheat exports illustrate the lack of supply, the FAO economist said.

“That rumors can have such an impact tells you something about the tightness in the export markets,” he said. “The market is not foolish, it reacts because it knows availabilities are tight. We’ll probably see more of these short-term ups and downs in the first quarter.”

Wheat prices may enter “bumpy territory” as Black Sea producers Ukraine and Russia exhaust their export supplies, before certainty about South America’s grain harvests leads to more stable prices, Abbassian said. Ukraine will probably run out of wheat to export by the end of December, he said.

“That’s what the story is going to be in the first quarter of next year, people sitting in an uncomfortable situation and watching the weather,” Abbassian said. “The last few years have taught us we just don’t know before we get to the harvest.”

Favorable weather conditions for the wheat crop next year and good yields may cause a “big correction” downward for grain prices, according to the economist.

Rice inventories are climbing after multiple record crops, keeping a lid on food prices in some countries in Asia even as the cost of wheat and corn climbs, the economist said.

Rice Buffer

“Rice really saved us,” Abbassian said. “If it wasn’t for rice this year, there would have been far more outcry about the corn shortage.”

World rice ending stocks are forecast to climb 6.6 percent to an all-time high of 169.8 million tons in 2012-13, after three consecutive record harvests outpacing demand, according to the FAO. Rising incomes in some Asian countries mean consumers there are using less rice in diets, Abbassian said.

“We could end up in a situation where rice keeps piling up and real demand is not increasing,” Abbassian said. “If population growth is slowing and per capita consumption is under pressure, and we continue to produce more rice year after year, that could bring its own problems.”

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


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