Wheat, Corn Stockpiles Dwindle as Russia Drought Curbs Output
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Pastor Dale Morgan
Aug 11, 2010, 11:15:10 PM8/11/10
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Perilous Times and Climate Change
Wheat, Corn Stockpiles Dwindle as Russia Drought Curbs Output
By Jeff Wilson and Whitney McFerron - Aug 11, 2010 5:00 PM PT
Aug. 11 (Bloomberg) -- Colin Fenton, chief executive officer of Curium Capital Advisors, talks about the outlook for commodities and investment strategy. Fenton speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
The world’s appetite for meat, flour and ethanol is expanding faster than the supply of the crops needed to produce them, eroding inventories and increasing the chance of accelerating food prices.
Wheat stockpiles may slip to a two-year low as demand rises and a drought damages Russia’s crop, according to 17 analysts in a Bloomberg survey. Inventories of corn, used to feed livestock and make fuel, probably will drop to the lowest level since 2008, even as output tops a record, the survey shows. The U.S. Department of Agriculture will update its forecasts later today.
Russia’s worst dry spell in 50 years sent Chicago wheat futures to a 23-month high on Aug. 6. Corn prices are up 24 percent in the past year, as ethanol mills use 35 percent of the grain produced in the U.S., the world’s largest exporter, and rising global incomes lead to more beef and pork consumption.
“The world doesn’t have enough exportable supplies to meet demand” for wheat and feed grains, said John Macintosh, 61, a vice president at Rand Financial Services Inc. in Chicago who has been trading agricultural commodities since he was with Continental Grain in 1973.
Russia, the world’s third-largest wheat exporter, plans to ban shipments starting Aug. 15 after concluding that its grain harvest may plunge 38 percent this year to 60 million metric tons. Dmitry Rylko, a director at the Moscow-based Institute for Agricultural Market Studies, said yesterday that the estimate may be cut further because of the worsening drought.
Food-Price Concern
While wheat prices have dropped 11 percent in the past four sessions to $7.25 a bushel on the Chicago Board of Trade, they’re still up 58 percent since the end of May. In 2008, record crop prices led to food riots and export bans from Haiti to Egypt.
World food prices rose for the first time in three months in July on higher costs for cereals and sugar, the United Nations’ Food and Agriculture Organization said on July 29. The USDA said July 23 that meat prices will rise faster than expected this year at 2 percent to 3 percent.
Premier Foods Plc, the St. Albans, England-based maker of the Hovis brand, said Aug. 5 that higher wheat costs mean an “inevitable increase” in bread prices.
Another food crisis is possible if wheat drives the prices higher for other staples, according to Franciscus Welirang, chairman of the Flour Mills Association in Indonesia, the nation’s largest buyer of the grain.
“There will be a domino reaction, and we expect corn demand will rise, pushing prices higher, and feed industries will buy more corn and soybeans,” Welirang said on Aug. 6. “It’s the end of cheap wheat.”
Ample Inventories
The wheat rally will need to last longer to boost costs for consumers, according to Bill Lapp, the president of Advanced Economic Solutions in Omaha, Nebraska, and the former chief economist for ConAgra Foods Inc.
“I don’t think it’s going to immediately pass through,” Lapp said Aug. 5. “It’s been a dramatic increase, but you have end users who have at least some inventory, and probably more coverage than they had two years ago,” he said. In February 2008, Chicago wheat futures jumped to a record $13.495 a bushel.
“We’re going from an incredibly burdensome supply down to just above normal, so this is not a shortage,” said Rich Nelson, the director of research at commodity broker Allendale Inc. in McHenry, Illinois.
The USDA probably will cut its estimate of world wheat inventories before the next harvest to 178.78 million tons from last month’s forecast of 187.05 million, according to the Bloomberg survey. A year earlier, stockpiles were 193.02 million.
Fewer Exports
“Russia is going to cut back on exporting,” which will boost demand for supplies from the U.S., Canada and the European Union, said Alan Brugler, the president of Brugler Marketing & Management LLC in Omaha, Nebraska.
“The trade is guessing that the Russian wheat crop is anywhere from 20 percent to 40 percent devastated,” Allendale’s Nelson said. “At this point, we don’t know what it’s going to be. They’re into harvest in key drought areas right now.”
A prolonged drought may further erode supplies by damaging next year’s crop.
“It has the potential to be very explosive the next five weeks because by then we will know if Russia gets enough rain to plant its winter-grain crops,” Rand Financial’s Macintosh said. “It will take a miracle for Russia to get enough rain to get winter crops fully established” before freezing temperatures arrive at the end of September, he said.
“Russia is not going to let any food out of the region,” he said. “Wheat, barley, corn, oilseeds, hay or potatoes that were going to be harvested from July to October have been severely damaged. No one is prepared for this shortfall.”
Corn Stockpiles Drop
World corn inventories before next year’s harvest probably will slip to 137.94 million tons, down 1.2 percent from a year earlier and the first decline since 2007, according to the Bloomberg survey.
Last month, the USDA cut its estimate to 141.08 million, citing a jump in U.S. ethanol use to 4.7 billion bushels, or 35 percent of estimated production of 13.245 billion bushels. Global feed use was estimated in July at 492.9 million tons, up 1.3 percent from a year earlier.
Meat and dairy demand has grown more than any other major commodity group since 1980, according to the FAO. Global meat consumption totaled 41.2 pounds per capita in 2005, a 37 percent increase from 30 pounds in 1980. Developing countries including China and Brazil are eating twice as much as in 1980, at 30.9 pounds per capita, the FAO said.
Feed Use
In the U.S., it takes 11.9 bushels of corn, 143 pounds soybean meal and 33 pounds of dried distillers grains to feed a hog from birth to slaughter, said Altin Kalo, a commodity analyst for Steiner Consulting Group in Manchester, New Hampshire. Cattle eat 49.3 bushels of corn, 1.025 tons of dried distillers grains and 0.362 tons hay to reach an 820-pound carcass weight, Kalo said.
“The big wildcard is what the USDA is going to show for corn production,” Brugler said. “It’s going to be a big number.”
The U.S. probably will harvest 13.255 billion bushels of the grain, more than the government’s July estimate of 13.245 billion and above last year’s estimated record of 13.11 billion, according to the Bloomberg survey.
“It’s probably going to be the highest number of the year,” Brugler said. The USDA is “probably going to find more ears per acre than they did last year, with record high ears per acre.”
Wheat, Corn Stockpiles Dwindle as Russia Drought Curbs Output
By Jeff Wilson and Whitney McFerron - Aug 11, 2010 5:00 PM PT
Aug. 11 (Bloomberg) -- Colin Fenton, chief executive officer of Curium Capital Advisors, talks about the outlook for commodities and investment strategy. Fenton speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
The world’s appetite for meat, flour and ethanol is expanding faster than the supply of the crops needed to produce them, eroding inventories and increasing the chance of accelerating food prices.
Wheat stockpiles may slip to a two-year low as demand rises and a drought damages Russia’s crop, according to 17 analysts in a Bloomberg survey. Inventories of corn, used to feed livestock and make fuel, probably will drop to the lowest level since 2008, even as output tops a record, the survey shows. The U.S. Department of Agriculture will update its forecasts later today.
Russia’s worst dry spell in 50 years sent Chicago wheat futures to a 23-month high on Aug. 6. Corn prices are up 24 percent in the past year, as ethanol mills use 35 percent of the grain produced in the U.S., the world’s largest exporter, and rising global incomes lead to more beef and pork consumption.
“The world doesn’t have enough exportable supplies to meet demand” for wheat and feed grains, said John Macintosh, 61, a vice president at Rand Financial Services Inc. in Chicago who has been trading agricultural commodities since he was with Continental Grain in 1973.
Russia, the world’s third-largest wheat exporter, plans to ban shipments starting Aug. 15 after concluding that its grain harvest may plunge 38 percent this year to 60 million metric tons. Dmitry Rylko, a director at the Moscow-based Institute for Agricultural Market Studies, said yesterday that the estimate may be cut further because of the worsening drought.
Food-Price Concern
While wheat prices have dropped 11 percent in the past four sessions to $7.25 a bushel on the Chicago Board of Trade, they’re still up 58 percent since the end of May. In 2008, record crop prices led to food riots and export bans from Haiti to Egypt.
World food prices rose for the first time in three months in July on higher costs for cereals and sugar, the United Nations’ Food and Agriculture Organization said on July 29. The USDA said July 23 that meat prices will rise faster than expected this year at 2 percent to 3 percent.
Premier Foods Plc, the St. Albans, England-based maker of the Hovis brand, said Aug. 5 that higher wheat costs mean an “inevitable increase” in bread prices.
Another food crisis is possible if wheat drives the prices higher for other staples, according to Franciscus Welirang, chairman of the Flour Mills Association in Indonesia, the nation’s largest buyer of the grain.
“There will be a domino reaction, and we expect corn demand will rise, pushing prices higher, and feed industries will buy more corn and soybeans,” Welirang said on Aug. 6. “It’s the end of cheap wheat.”
Ample Inventories
The wheat rally will need to last longer to boost costs for consumers, according to Bill Lapp, the president of Advanced Economic Solutions in Omaha, Nebraska, and the former chief economist for ConAgra Foods Inc.
“I don’t think it’s going to immediately pass through,” Lapp said Aug. 5. “It’s been a dramatic increase, but you have end users who have at least some inventory, and probably more coverage than they had two years ago,” he said. In February 2008, Chicago wheat futures jumped to a record $13.495 a bushel.
“We’re going from an incredibly burdensome supply down to just above normal, so this is not a shortage,” said Rich Nelson, the director of research at commodity broker Allendale Inc. in McHenry, Illinois.
The USDA probably will cut its estimate of world wheat inventories before the next harvest to 178.78 million tons from last month’s forecast of 187.05 million, according to the Bloomberg survey. A year earlier, stockpiles were 193.02 million.
Fewer Exports
“Russia is going to cut back on exporting,” which will boost demand for supplies from the U.S., Canada and the European Union, said Alan Brugler, the president of Brugler Marketing & Management LLC in Omaha, Nebraska.
“The trade is guessing that the Russian wheat crop is anywhere from 20 percent to 40 percent devastated,” Allendale’s Nelson said. “At this point, we don’t know what it’s going to be. They’re into harvest in key drought areas right now.”
A prolonged drought may further erode supplies by damaging next year’s crop.
“It has the potential to be very explosive the next five weeks because by then we will know if Russia gets enough rain to plant its winter-grain crops,” Rand Financial’s Macintosh said. “It will take a miracle for Russia to get enough rain to get winter crops fully established” before freezing temperatures arrive at the end of September, he said.
“Russia is not going to let any food out of the region,” he said. “Wheat, barley, corn, oilseeds, hay or potatoes that were going to be harvested from July to October have been severely damaged. No one is prepared for this shortfall.”
Corn Stockpiles Drop
World corn inventories before next year’s harvest probably will slip to 137.94 million tons, down 1.2 percent from a year earlier and the first decline since 2007, according to the Bloomberg survey.
Last month, the USDA cut its estimate to 141.08 million, citing a jump in U.S. ethanol use to 4.7 billion bushels, or 35 percent of estimated production of 13.245 billion bushels. Global feed use was estimated in July at 492.9 million tons, up 1.3 percent from a year earlier.
Meat and dairy demand has grown more than any other major commodity group since 1980, according to the FAO. Global meat consumption totaled 41.2 pounds per capita in 2005, a 37 percent increase from 30 pounds in 1980. Developing countries including China and Brazil are eating twice as much as in 1980, at 30.9 pounds per capita, the FAO said.
Feed Use
In the U.S., it takes 11.9 bushels of corn, 143 pounds soybean meal and 33 pounds of dried distillers grains to feed a hog from birth to slaughter, said Altin Kalo, a commodity analyst for Steiner Consulting Group in Manchester, New Hampshire. Cattle eat 49.3 bushels of corn, 1.025 tons of dried distillers grains and 0.362 tons hay to reach an 820-pound carcass weight, Kalo said.
“The big wildcard is what the USDA is going to show for corn production,” Brugler said. “It’s going to be a big number.”
The U.S. probably will harvest 13.255 billion bushels of the grain, more than the government’s July estimate of 13.245 billion and above last year’s estimated record of 13.11 billion, according to the Bloomberg survey.
“It’s probably going to be the highest number of the year,” Brugler said. The USDA is “probably going to find more ears per acre than they did last year, with record high ears per acre.”
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