Wheat futures surprised many investors by rising last year in the US – albeit for the first time in five years, a bear run over which prices had near-halved, and by a modest 4.7% in Chicago.
The gains came despite a record Russian harvest, which far exceeded initial expectations, and is seen propelling the country to a handsome lead in the world wheat export market.
However, in the US, dollar softness helped.
(Indeed, futures in Paris and London were not so resilient as their Chicago peers, in local terms, showing losses of 5.4% and 1.9% respectively, undermined by headway in the euro and sterling against the greenback.)
Furthermore, world production did receive some setbacks, notably from dry weather in North America and, later in 2017, in Australia.
Can wheat futures rise in 2018 for a second successive year, for the first time since 2007? Or will Russia’s huge supplies, and the potential for another decent harvest, send prices lower again?
Leading commentators give their outlooks.
Mike Zuzolo, Global Commodity Analytics
“Is wheat likely to find a low in 2018? I think it is likely, especially given that world wheat stocks-to-use ratios are holding steady at 36%.
“We see a more significant drought scenario in the key hard red winter wheat belt than that of a year ago at this time.
“When the dollar is declining, there is a strong trend of prices that can reach above $5 a bushel on an annual basis.
“While I expect continued strong competition from the Black Sea in 2018, I think the southern hemisphere wheat supply will be smaller.”
“We peg US all-wheat production slightly higher in 2018-19 on the back of a reversion to trend yields.
“The EU and Russia should also keep taking wheat export market share away from the US… We expect combined Russia/EU wheat exports by 2018-19 to hit multi-year highs of 68+m tonnes, above 60% of global trade, versus the US at 26m-27m tonnes.
“And while low wheat prices could spur a demand response, global inventories are also projected at a record of about 267m tonnes as wheat harvest growth outpaces demand for the fifth straight marketing campaign.”
“From a physical balancing perspective, we think local producer discipline, which has already materialised for wheat versus the row crops in the past few years, can continue to limit downside corrections.
“Indeed, model-based prices on the US stocks-to-use decline for wheat would suggest a Chicago push above $5 a bushel in the first half of 2018.”
“Production in 2017-18 only decreased significantly year-on-year in a handful of countries, such as in Canada and the US, where the wheat acreage fell to its lowest level since records began 100 years ago.
“The global supply situation as a whole is so plentiful that prices are likely to remain under pressure for the foreseeable future.
“That said, many of these aspects have already been priced in, and short-term oriented market participants meanwhile hold high net short positions again.
“It is still too early to estimate the global balance in 2018-19, but there are no signs of any significant tightening.
“For the fourth quarter of 2018 we forecast a wheat price of $4.60 per bushel in Chicago and a price of E170 per tonne in Paris.”
“Rabobank forecasts marginal price strength for global wheat futures in the 12-month period… at between $4.50-4.70 per bushel for Chicago through 2018, as exportable world stocks erode for the first time in six years.
“Paris wheat is forecast to climb to E175 per tonne by the October-to-December quarter of 2018.
“Planted acres for 2018-19, given an ongoing low price environment, will see limited growth year on year.
“US total planted acres are pegged at 47m in 2018-19, with abandonment at 16%, above the 10-year average of 15%. Growers might opt to graze livestock on hard red winter wheat fields in the absence of sufficient margin.
“This will see US stocks run down to 850m bushels. Looking broader, several major exporters – Australia, Canada and the European Union – are in a similar position, with stocks forecast to either erode or endure in 2018-19.
“Excluding China, the world supply-demand balance is forecast to run a 7.5m-tonne deficit in 2018-19, the combination o f a 15 cut in production coupled with a 0.5% hike in consumption.
“This will be the first deficit since 2012-13, and the beginning of a trend towards rebalancing, a factor which drives our mildly bullish view.”
Forward wheat prices for the second half of 2018 and beyond remain uncompetitive in the export market and are likely to decline to $4.5 a bushel, in our view, which would support US wheat exports.
“Record carryover inventories, record yields in Russia and recovery in production in the US, Canada and Australia in 2018-19 should continue to weigh on prices despite a further decline in acreage in the US.
“We believe that only a sharp decline in US wheat acreage could support wheat prices in 2018 as the export market is likely to remain well supplied
“We forecast a decline in the US stock-to-use ratio, from 43.8% in 2017-18 to 35.9% in 2018-19, which would still be high enough to keep prices under pressure in 2018.
“On balance, inventories and stock-to-use metrics point to a comfortable global supply outlook, supporting our 2018 bearish view.
“Our 12-month forecasts for Chicago and Kansas wheat are bearish at $4.50 a bushel.”