Farmers from Australia to Europe to the U.S. are poised to reap the second-largest wheat crop on record as fields recover from drought and heat waves, boosting global stockpiles for the first time in four years.
Output will climb 4.3 percent to 690 million metric tons, about 10 million tons short of the all-time high set two years ago, the United Nations estimates. Global inventories will increase by 2 million tons to 176 million tons, the Australian Bureau of Agricultural and Resource Economics and Sciences predicts.
Prices will probably drop 16 percent to $6 a bushel in Chicago by the end of the year, according to the median of 16 analyst and trader estimates given to Bloomberg.
Food supply is expanding, with the U.N. forecasting a record rice harvest and the U.S. government the biggest-ever corn and soybean crops. Wheat closed at $7.23 on the Chicago Board of Trade on March 15 and last traded at $6 last May, before the worst U.S. drought since the 1930s and heat waves in Europe drove prices to a four-year high in July. Snowstorms in the U.S. have since helped boost soil moisture, Joe Glauber, chief economist at the U.S. Department of Agriculture, said March 6.
“The supply situation was compromised through some very adverse weather events in the Northern Hemisphere,” said Steve Mellington, CEO of the Australian Grain Growers Cooperative, which has 350 members across three states. “Growers are now responding to those price signals with the increased area being planted this year.”
The supply outlook flipped wheat from being last year’s best performer in the Standard & Poor’s GSCI Index of 24 raw materials to the second worst in 2013.
Europe will lead the rebound, and yields are set to recover in Russia, the third-biggest shipper last season, says the U.N. Food & Agriculture Organization (FAO). That would boost inventories, said Bangkok-based Hiroyuki Konuma, FAO’s assistant director-general.
A recovery in reserves would follow three years of declines. The world grain crop, including wheat and corn, probably will rise 7.2 percent to 2.406 billion tons in the coming season, estimates trader Alfred C. Toepfer International GmbH.
Higher production should make for more exports. India, the third-largest grower after the European Union and China, may boost shipments to a record 10 million tons to clear out state stockpiles, according to the state-backed National Centre for Agricultural Economics and Policy Research. Exports were 6.5 million tons this year, according to USDA data.
The U.S. drought eased after snow from Texas to Wisconsin combined with above-average rainfall east of the Mississippi River, said AccuWeather Inc. However, the USDA still forecasts a 7.4 percent drop in the harvest to 57.2 million tons this year.