Geneva | Reuters — Hefty supplies, large expected crops and poor U.S. exports will weigh on grain prices later this year with corn and wheat set to drop to 10-year lows as harvest nears, consultancy AgResource said Friday.
In its first 2016 price forecast, the U.S.-based consultancy forecast Chicago Board of Trade (CBOT) December corn would fall 25 per cent to $2.80 per bushel as the harvest nears and it becomes the market’s front month (all figures US$). That would be the lowest front-month contract since October 2006.
July wheat is expected to fall by nearly 14 per cent to $4 per bushel, the lowest since September 2006, while soybean November is seen tumbling 17 per cent to $7.60 per bushel, the lowest since May 2007, AgResource president Dan Basse told Reuters at the Cereals Europe conference in Geneva.
“For corn, you have a record production both in the U.S. and in Argentina this year, the two combined lead to (a price of) $2.80” per bushel, he said on the sidelines of the conference.
Corn and wheat crops in Argentina, one of the world’s top exporters of the grains, are expected to surge next season as farmers increase plantings, encouraged by the new government’s decision to scrap export taxes and restrictions, and improved competitiveness due to the devaluation of the local currency.
AgResource forecast Argentina’s corn harvest at 39-40 million tonnes, up from 27 million last year, while the wheat crop is seen rising to 17 million tonnes in 2016-17 from 11 million in 2015.
“This is a significant increase, not only in crops but also combined exports because they don’t have the livestock pulse or infrastructure in terms of biofuels to consume it so they will be exporting a lot of that, and they can,” Basse said.
“These guys are going to be an export powerhouse.”
With Brazil’s corn crop also expected to rise, Basse described South America as an “export powerhouse” whose harvests would structurally change the world market.
The U.S. corn crop is expected to reach a record high in 2016-17 at 14.4 billion bushels as farmers plant on a larger area, which the U.S. Department of Agriculture’s (USDA) estimated would be the third-largest since 1944.
U.S. wheat prices are also expected to be pressured by poor exports as the country faces increased competition from cheaper supplies from the Black Sea and Europe.
“The U.S. has dropped to number four in terms of wheat trade,” Basse, noting that the U.S. was expected to ship less wheat in 2015-16 than Canada.
The world’s two largest wheat exporters are the combined European Union and Russia.
For soybean, the main drivers for the drop in prices would be ample supplies, notably in South America, as well as softer demand for soymeal in China.
China, whose soybean imports accounted for 70 per cent of global trade last year, said on Wednesday it intended to boost domestic soybean production for human consumption, although it said it would still need to import for feed.
“China’s more routine buying and record large stocks in the G3 (U.S., Brazil, Argentina) will put pressure on soybean prices,” Basse said.
“Next year Brazil will produce more soybean than the U.S. for the first time ever,” he noted.
— Reporting for Reuters by Sybille de La Hamaide from Geneva.