UN flags 'low wheat price outlook', as 2017 crops make good start


The United Nations flagged a "low price" outlook for wheat as it underlined the decent prospects, thus far, for 2017 harvests, at a time when inventories of the grain are already at a record high.

"Looking forward to the 2017," the UN's food agency, the Food and Agriculture Organisation, flagged "low price prospects" for wheat, whose values are already historically weak in the US, where Chicago futures – the world benchmark - are trading less than $0.30 a bushel from 10-year lows.

The UN's own cereals price index is also less than 0.4% from a decline low.

Indeed, the weak price outlook is, in the US, "expected to lead to a contraction in the area planted with wheat in the US", the FAO said, chiming with forecasts from some other commentators that US winter wheat area for the 2017 harvest has dropped to its lowest in a century.

However, farmers in many other countries have not followed suit, with the FAO saying that "plantings are expected to increase in Russia, Ukraine, India and Pakistan".

'Beneficial weather'

Indeed, in Russia and Ukraine, "the 2017 production outlook is mostly favourable on account of beneficial weather" as well as the rise in winter plantings, the agency said.

In India and Pakistan, "early projections point to a larger 2017 crop," thanks to "improved water availability for the mainly irrigated wheat crop", which has spurred plantings hopes.

For India, a recovery in production would come as a welcome recovery from a drought-hit harvest this year, which led local wheat prices to buck the world trend and hit a record high last month of 2,143 rupees per 100kg, as measured by the spot contract on the NCDEX exchange.

India's government on Thursday, in the face of high prices, cut its 10% import tax on wheat, a move which some observers believe could fuel a rise in buy-ins to a 10-year high of some 5m tonnes in 2016-17.

Record inventories

In the European Union too, which has a bloc is the top wheat producer, the FAO flagged sowing was "nearly complete under generally good conditions".

And in China, the biggest wheat growing country, "the outlook… is similarly positive, as good weather conditions facilitated fieldwork and benefited the establishment of the early-planted wheat crop".

The strong start to winter wheat crops ahead of the 2017 harvest comes as world inventories of the grain are already at record highs, with the FAO upgrading its estimate for stocks at the close of 2016-17 by 3.3m tonnes to 238.5m tonnes.

The upgrade reflected an increase of 2.6m tonnes to 749.3m tonnes in the global 2016-17 harvest, down mainly to "improved yield prospects for Iran and Kazakhstan".

Prices close to 10-year lows

The FAO also lifted its forecast for world coarse grain stocks at the close of 2016-17, by 3.9m tonnes to 261.1m tonnes, thanks to improved production hopes, although inventories at this level would still represent a marginal decline year on year.

And it said that cereals prices as measured by its own index had, weighted by "ample supplies", weakened by 0.6% last month to within an ace of their lowest since October 2006.

"Good harvest prospects in Argentina and Australia weighed on wheat quotations," the agency added.

Sugar price slump

However, a bigger decline, of 8.9% was seen in sugar prices, a slump which the FAO said was "largely imputable to a weakening of the Brazilian real with respect to the dollar, which stimulated sugar exports from Brazil, the world's largest sugar producer and exporter.

"Reports of a higher than expected harvest in the Centre South, Brazil's main producing region, also helped to pressure sugar prices downward."

The declines more than offset rises in dairy and vegetable oils values to send the overall FAO food price index down 0.4% month on month, a decline which "marked a departure from an almost uninterrupted rising trend in the Index since the start of the year".


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