Rabobank: Global stocks cast cloud over wheat and dairy prices

24.11.2016

WHEAT is expected to remain in the doldrums through next year while dairy’s future depends on European farmers’ response to rising dairy prices, according to the latest Rabobank report.

The Rabobank Outlook 2017 report indicates global stockpiles of rural commodities will overhang market forces well into the new year.

The bank said it expected global wheat production to fall about 1.4 per cent to 726.9 million tonnes from its estimate of the 2016-17 crop of 737 million tonnes but that was still 2 per cent higher than the five-year average.

It said global consumption of wheat was expected to rise for the ninth consecutive year but that was not enough to considerably run down stocks.

Stocks were expected to remain at levels of about 250 million tonnes, or about four months’ supply.

“The absence of meaningful stock-building should tentatively support markets into the second quarter of 2017 but — in our view — to not more than the $US5 a bushel ($248 a tonne),” Rabobank said.

“We suggest a major production shock in at least two major producing regions will be required to substantially cut global stocks and to drive prices higher.”

In its “base case” scenario, Rabobank expected wheat prices to rise from the $US4.15 a bushel average for the last quarter of this year to $US4.60 a but ($227 a tonne) by the end of next year.

But it said in a worst-case scenario, wheat prices could fall to $US4 a but ($198 a tonne) by the end of 2017.

At best, prices could climb to $US5.20 a but, or $257 a tonne by the end of the year.

But that would require a supply-side shock in one or more wheat producing nations speeding up the erosion of stocks.

Stocks also hold the key to the dairy sector after two years of very low commodity prices.

Rabobank said various governments had stepped in to support struggling dairy farmers.

“The European Commission has made the biggest impact by removing over four million tonnes of liquid milk equivalents under the intervention scheme from the spot market and placing skimmed milk powder into storage until the market has recovered,” the bank said.

“All the while, demand has continued to grow in the US and EU, particularly for cheese and butter.

“China has also improved its import demand, increasing 10 per cent in the third quarter of 2016 and imports from the rest of the world are up nearly 2 per cent in the quarter.

“The combined effect of solid demand growth, contracting supply and the EU’s intervention scheme has created tightness in the spot market and as a result, international dairy commodity prices have risen by 30 per cent in the second half of 2016.”

But Rabobank said if prices continued to rise, dairy’s future lay in the response of European farmers.

It said that if they opted to produce more milk rather than using the EU’s supply reduction scheme, prices could fall to lower than


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