‘It is currently a world awash with wheat’ – Here’s why grain prices are so low

The world is currently awash with wheat, and this is having a negative impact on the price of cereals produced in Ireland as the grain and tillage markets have become heavy with feed grain, said John Bergin.

According to R&H Hall’s John Bergin, this has occurred as a result of three good consecutive harvests and the increased production of wheat and corn (maize).

Speaking at the Teagasc National Crops Forum, the R&H Hall trader highlighted the main causes for this increased production.

“We are in a market that is heavy with supply and stocks continue to grow. Corn (maize) is becoming the dominant feed grain and the US could produce 200 million tonnes this year.”

Bergin added that there is massive supply in feed grains across the world

“World wheat production has increased, in general there are spikes in supply and demand. At the minute there is a peak in supply

“Since 2012 there has been three really good growing years, this has resulted in production outstripping demand,” he said.

Wheat

According to Bergin, there will be 725m tonne of wheat produced in 2015, with only 125m tonne of this product being classified as feeding wheat.

The small proportion of feeding wheat is important, as the market is currently driven by milling wheat price.

We are in a feed grain market that is looking for demand rather then supply, It is currently a world awash with wheat.

The former Soviet Union countries have produced approximately 112m tonne of wheat, and these regions are not as sensitive to price volatility, due to the weakness of their currencies.

Bergin also added that the grain market is very sensitive to political decisions, and at present Russia is selling cheap wheat to clear stocks in case of any future political upsets.

However, Bergin added that the former members of the Soviet Union have lower production capabilities per hectare than Europe, and are currently producing 2.4t/ha while European grain growers can produce 5.7t/ha.

Corn (Maize)

The increase in feed grains available has also been driven by increased corn production, said Bergin.

The US had their third largest corn crop in history resulting in 200m tonne of stocks, Brazil has also become a major player in this market as it now produces 80m tonne annually.

Bergin added that maize production in the former Soviet Union has also increased, with the biggest change occurring in the Ukraine, where production has increased 433% since 2009 (4.5m tonne vs 24m tonne).

The increase in maize production has occurred despite price falls, the bushel price of maize has fell from $8/bushel (€7.15) to $4/bushel (€3.50) as the US moves away from ethanol production to focus on other energy sources.

“Ethanol in the US was a big driver, but that has plateaued out, the demand has flattened out as a result of fracking and lower oil price,” said Bergin.

Economics

However, despite the poor prices, Bergin added that cereal prices in Europe could have been €10-15/tonne cheaper only for the relative strength of the dollar in comparison to the euro.

This exchange rate change is making European exports more attractive as €1 will currently purchase $1.11, which has dropped from $1.33 in the near past.

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