US wheat export retreat 'boosts risk of another Great Grain Robbery'

13.10.2016

Grain markets are becoming more vulnerable to "price shocks" – and even to witnessing another Great Grain Robbery – thanks to the growing stranglehold of countries on which ag investors find difficult to find accurate data.

The decrease in the grip of Canada and US on world wheat exports – their combined market share has fallen from 70% to 30% since 1972 – has meant a reduced amount of trade covered by countries with a strong record of offering detailed data over crop production and demand, the AHDB's Jack Watts.

Instead, trade has switched in many cases to nations which offer less insight into their grain dynamics, meaning traders have less information on which to base prices.

"We have lost an element of transparency," Mr Watts told the AHDB grain market outlook conference in London, flagging factors including the rise of Russia as a grains producer.

'Risk of price spikes'

These dynamics may not prove such an issue for now because of the large extent of world stocks, reducing the threat to supplies from any market upset.

However, factors such as the large extent of wheat stocks in China – a country renowned for a lack of data transparency - are a "little bit of a concern in the long term," said Mr Watts, the AHDB's lead analyst in cereals and oilseeds.

The implication of a more opaque market is an increased "risk of price spikes, because market struggles to keep up with the physicality of wheat in the world," said Mr Watts, the AHDB's lead analyst in cereals and oilseeds.

Great Grain Robbery redux?

Indeed, he flagged the raised risk of a repeat of an even such as the so-called Great Grain Robbery in 1972, in which the then Soviet Union, largely under the radar, purchased 10m tonnes of US grains at subsidised prices.

The fallout from the Soviet stockpiling, which sent Chicago wheat futures to their highest in more than a century, included the revamp by the US of its crop reporting system, including the introduction of its much-watched weekly crop export sales reports.

"Although we shouldn't get nostalgic about the 1972 Great Grain Robbery, the risk of similar events happening shouldn't be underestimated," Mr Watts said.

"The Great Grain Robbery gave rise to transparency in wheat trade. Much has changed since then."


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