Spend Matters welcomes this post by Loraine Hudson of Mintec.
So far, 2014 has been an interesting year for the U.S. wheat market. With the U.S. harvests having just ended, and ahead of the final figures, let’s examine the challenges that U.S. wheat has faced over the last eight months. It has been cold, dry, and wet and the world has been politically unstable – an uphill battle for wheat prices?
At the start of the year, prices had been following a medium term downward trend, starting in October 2013 when the U.S. had good harvests followed by expectation of another good crop in 2014. Then, parts of the U.S. were hit by one of the coldest and driest winters for decades in January, causing concern that the lack of snow cover combined with the windy and frigid conditions would reduce the quality of the wheat before it entered the winter dormancy phase. This drove a short-lived rise in prices.
In March, the political situation in Russia and Ukraine hit the headlines. Concerns over supply disruption from these two major exporters forced wheat prices up further. About the same time the weather came back to haunt the wheat farmers in the Great Plains. The lack of rain during a traditionally rainy period led to poor soil moisture in Kansas and Oklahoma and caused forecasts of poor or very poor quality wheat in these states, again helping to drive prices up.
The initial price increase was then compounded with speculation over the effects of the tensions between Russia and Ukraine. This raged for two months but eventually the evidence of continuing exports from both countries was overwhelming, and in April wheat prices began to fall again. As the weather improved, so did the prospects for wheat in other major producing regions, especially the EU. The large stocks in China, Russia, and Ukraine helped pile on the pressure for U.S. wheat prices and they kept on going down.
The much longed for rains hit parts of the US mid-June, but they came too late to do any good and only delayed the harvest. The forecast for US production is down 5 percent year-over-year at 55.2m tonnes but over 40 percent has been classed as poor or very poor quality.
Harvest-time rains can reduce the quality of wheat and, although short lived, the chance of the beleaguered U.S. wheat having further quality issues gave a boost to U.S. prices, causing them to rise 5 percent in a week, before falling back as the global production forecasts continued to be good.
Prices on CBOT for U.S. wheat have started to fall again. Global production is forecast at a record 716.1m tonnes, up more than 2m tonnes above the previous record in 2013/14.
It seems though that prospects of a record global production are winning out – U.S. wheat fought off Russian speculation and it managed to fight long and hard against Mother Nature to only walk away with only a few bruises.