IGC hikes world grains output hopes - but flags fears over milling wheat

26.08.2016

The International Grains Council flagged "escalating concerns" of a squeeze on milling wheat supplies, even as it hiked its forecast for world grains output to a record high, including a record harvest of wheats overall.

The intergovernmental group upgraded by 23m tonnes to 2.069bn tonnes its forecast for combined 2016-17 world production of wheat and coarse grains such as barley, corn and sorghum, taking the figure above the all-time high set two years ago.

The revision reflected "further upward revisions" both for corn, for which the world production estimate was lifted by 13m tonnes to a record 1.03bn tonnes, and for wheat.

"Increases for [wheat production in] the former Soviet Union and the US are again partly offset by a reduced figure for the European Union," the IGC said, lifting its estimate for overall global what output in 2016-17 by 8m tonnes.

'Escalating concerns'

The revision upgraded the wheat crop to a record top of 743m tonnes, eclipsing last year's all-time high, besides enabling growth of 12m tonnes to 229m tonnes in world carryout stocks over the season.

However, the IGC warned that the "new peak" in world wheat production disguised worries about the availability of higher quality supplies used in food, rather than livestock feed.

"Although the wheat harvest will likely be a new peak, the past month has seen escalating concerns about availabilities of milling grades," the council said.

"Ample rains boosted average yields of wheat in many places, but caused some quality downgrading."

'Shortfall in supplies'

The fears had already provided some support for wheat prices, which rose by 0.5% last month according to an IGC index.

"While expectations for bumper [grain] availabilities became more entrenched, with record global wheat, corn and soybean harvests increasingly likely, the comfortable supply outlook failed to exert much downside price pressure.

"Some traders focused on an expected shortfall in supplies of the best milling grade wheat."

Expanded premium

On futures markets, the trend has been reflected in growing premium of higher-protein Kansas City hard winter wheat and, in particular, Minneapolis-traded spring wheat, over Chicago soft red winter wheat, the world benchmark.

Kansas City wheat futures for December - which traded at an, unusual, discount of $0.24 a bushel in late June to their Chicago peer – recorded a premium of $0.08 per bushel on Wednesday, the highest in four months.

Minneapolis wheat futures for December saw their premium over their Chicago equivalent touch a contract high of $0.90 ј a bushel early this week – more than three times a low of $0.29 ј a bushel reached two months ago.

The Minneapolis premium has since eased back to stand at $0.80 ѕ a bushel, undermined somewhat by Canada's forecast on Tuesday of a bumper 30.5m-tonne wheat crop.

Canada grows in main spring wheat, which has a particularly high protein content.

Quality concerns have in fact been especially notable in the European Union, where persistent rains have damaged both production and specification hopes for crops in Germany and, in particular, France.


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