CHICAGO — Wheat farmers are harvesting a record crop for the fourth time in six years, adding to a global grain glut and cutting costs for food makers from Panera Bread to Domino’s Pizza.
Production will jump 7.7 percent to 711 million metric tons in the year ending May 30, the biggest expansion since 2009, the World Trade Organization said Dec. 5. Reserves before next year’s harvest will increase 2.5 percent, implying a surplus, according to the average of 20 analyst estimates compiled by Bloomberg. Societe Generale predicts Chicago futures will drop 5.6 percent to $6.10 a bushel by the second quarter.
Canada, Australia and Russia, the largest exporters after the United States, increased their estimates for harvests this month. Wheat will join an expanding global agricultural glut as farmers reap record corn, soybean and rice crops. The International Grains Council said last week that output will keep rising through 2019. Cereal costs tracked by the United Nations fell 24 percent in the past year, more than any food group.
“Supply security is much improved,” said Dan Basse, the Chicago-based president of AgResource Co., a research company. “There is plenty of supply, and world food prices should remain subdued for the next three to five years with normal weather.”
Wheat tumbled 17 percent to $6.4625 on the Chicago Board of Trade this year. It is the third-worst performer after corn and coffee among the eight commodities in the Standard & Poor’s Agriculture Index, which fell 19 percent and is heading for the biggest annual drop since 2008. The MSCI All-Country World Index of equities advanced 18 percent and the Bloomberg Treasury Bond Index lost 2.7 percent.
Inventories of wheat and feed grains including corn will climb to a four-year high of 379 million tons before the start of the 2014 harvest, 12 percent more than this year, according to the International Grains Council in London.
Australia, last year’s second-biggest wheat exporter, said Dec. 3 that the current crop will be the third-largest ever. Farmers may reap 26.2 million tons, 16 percent more than the 22.5 million collected a year earlier, the Australia Bureau of Agricultural and Resource Economics and Sciences said. It raised the forecast by about 7 percent.
Canada, the third-largest exporter, boosted its forecast on Dec. 4 to a record 37.5 million tons, 38 percent more than a year earlier. Farmers finished seeding most of the crop by mid- June and an extended growing season boosted yields, Statistics Canada said.
Russian farmers collected about 54.1 million tons this year, up from last year’s crop of 39.7 million, the Agriculture Ministry said Dec. 4. The government estimated 53.7 million tons on Nov. 5.
Increasing global supplies will pressure crop prices through the end of the year, HSBC Holdings said in a report Dec. 2. Lower prices may cut the world’s food-import bill by 3.2 percent to $1.15 trillion this year, according to the United Nations Food & Agriculture Organization. Global food costs tracked by the Rome-based group fell 13 percent since reaching a record in February 2011.
Even as global supplies increase, stockpiles are dropping in the U.S., where fields are still recovering from a 2012 drought that was the worst since the 1930s. Inventories before next year’s harvest will drop to 547 million bushels (14.9 million tons), 24 percent less than a year earlier, according to a Bloomberg survey of 29 analysts.
U.S. production this year fell 6 percent to 2.130 billion bushels, the USDA said last month. Inventories as of Sept. 1, three months into the marketing year that began June 1, dropped 12 percent from a year earlier and were the lowest for that date in six years as livestock producers used more of the grain in place of corn, the USDA said Sept. 30.
U.S. export sales from June 1 to Nov. 28 totaled 22.657 million tons, 37 percent more than a year earlier, USDA data show.
“Wheat prices are expected to remain significantly above corn” for the next several months as supply tightens, said Dan Cekander, the director of grain-market analysis for Newedge USA in Chicago. Cekander forecasts inventories will fall to 404 million bushels.
Hedge funds and other large speculators have been betting on lower prices in 45 of the past 50 weeks, U.S. Commodity Futures Trading Commission data show. On Nov. 29, holdings were the most-bearish on record, according to the CFTC, which began collecting the data in 2006.
The cost of sales at Cheesecake Factory Inc.’s 165 restaurants slid 0.6 percentage point, mostly because lower wheat and corn prices made pasta and cooking oil cheaper to buy, Chief Financial Officer W. Douglas Benn said on an Oct. 23 conference call.
Margins on the fresh dough sold by St. Louis-based Panera Bread to franchisees of more than 1,700 bakery cafes in North America widened by 0.4 percentage point in the third quarter as wheat prices dropped, CFO Roger C. Matthews Jr. said on an Oct. 23 conference call.
Domino’s Pizza, the Ann Arbor, Mich.-based owner of about 10,000 restaurants worldwide, expects slumping grain prices including wheat to keep its main commodity costs “very manageable” in 2014, CFO Michael T. Lawton said in a Nov. 20 presentation to analysts.
Wheat’s widening premium over corn may lead to reduced demand from livestock producers that accounted for 20 percent of consumption last year, according to Emily French, the managing director at ConsiliAgra, a consultant and brokerage in Chicago. Goldman Sachs Group Inc. said Nov. 20 that corn will drop to $4 by the end of the year and $3.75 by the end of 2014. The grain traded at $4.3625 today.
There are signs that demand for U.S. wheat is slowing with the increased competition from Canada, Australia and the European Union, said Randy Mittelstaedt, the director of research for R.J. O’Brien & Associates in Chicago. Export sales in the week ended Nov. 28 fell to the lowest since May, the USDA said Dec. 5.
“Global supplies are up more than expected a few months ago, and the key is that crops are going to be large in the major exporting nations,” Mittelstaedt said. “There is no rush for importing nations to buy ahead when exporters are sitting with surplus inventories they want to sell.”
