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Last updated: December 9, 2011 7:58 pm
Global wheat inventories are heading towards their highest level in more than a decade after a string of bumper crops, the US government has said, easing concerns about agricultural commodities inflation and global food security.
The US Department of Agriculture said on Friday that the 2011-12 wheat crop would rise to 689.0m tonnes, the largest on record, and 37.4m tonnes above the 2010-11 level, pushing global wheat stocks to their highest level in 12 years.
“In just one year, the market supply situation has completely reversed from one of extreme tightness to a surplus,” it said in its monthly world agricultural supply and demand estimates report. “Black Sea countries’ supplies have recovered from last year’s drought and Australia is expecting back-to-back bumper crops.”
Wheat, together with rice, is the most important crop for global food security. Global agricultural markets have been in the spotlight since the 2007-08 food crisis, the first in 30 years, when the cost of raw materials from wheat to rice surged to record highs and poor countries from Haiti to Bangladesh were hit by food riots.
The USDA monthly report weighed on wheat futures, with the benchmark CBOT December soft red winter wheat futures contract falling 1.6 per cent to $5.67¾ a bushel, the lowest level since July and not far off a 1½-year low.
Sterling Smith, an analyst at broker Country Hedging in Minneapolis, said that wheat prices had weakened because there was “plenty of it”.
Hussein Allidina, head of research at Morgan Stanley in New York, added in a note to clients that the USDA report was “bearish” for wheat due to “more comfortable” US and global supply, demand and inventories balances:
The cost of the cereal has fallen 37 per cent since hitting a peak of $8.93¼ a bushel in February. Wheat prices surged from mid-2010 after Russia banned wheat exports following a crop failure due to the worst drought in a century.
The Russian export ban, announced in August 2010, pushed Middle East and north African countries, the world’s biggest cereal importers, to hoard supplies, accelerating the price rise. Moscow lifted the export ban earlier this year.
The USDA report was also bearish for rice, corn and soyabean, predicting big crops and a build-up in inventories. The bumper crops are rebuilding thin inventories for crops such as corn, easing price pressures. But grain traders and analysts believe that the farmers will need at least a second good crop before stocks build back to the comfortable levels of the 1990s and early 2000s.
CBOT December corn fell to $5.79½ a bushel, down 1.6 per cent on the day and nearing its lowest level in a year. CBOT January soyabean fell to a 14-month low of $10.74½ a bushel, down 2.2 per cent. Soyabean prices are suffering due to ample availability of exportable surpluses, particularly for vegetable oil.
The USDA said that the US, the largest exporter of soya, is selling soyabean oil to foreign markets at the slowest pace since 2005-06. “Consequently, exports for the full year are forecast to plunge to less than half the level reached in the previous two years,” the USDA said, pushing investors to sell the commodity.
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