Wheat Poised for Bear Market on Signs of Rising Global Reserves

Jun 10, 2014 3:55 pm ET

June 10 (Bloomberg) -- Wheat prices are poised to enter a bear market on signs that global inventories are climbing as demand wanes for supplies from the U.S., the biggest exporter.

Global stockpiles before the 2015 harvest may rise to the highest in three years, a Bloomberg survey shows. American exporters have sold about 30 percent less wheat for shipment before June 1 than at this time a year earlier, according to government data. The dollar has gained 1.3 percent against a basket of 10 currencies since May 6, when futures touched the highest since February 2013.

Rising grain supplies are helping to keep global food costs in check, with the United Nations saying that world prices fell for a second month in May. The Standard & Poor’s GSCI Agricultural Index of eight crops fell for a sixth straight week through June 6, the longest slump since October 2011. U.S. farmers are poised to collect record corn and soybean crops, a Bloomberg survey showed.

“Plentiful world supplies means more competition for U.S. wheat,” Brian Grete, the editor of Professional Farmers of America newsletter in Cedar Falls, Iowa, said in a telephone interview. “Robust world crops and a rising dollar means U.S. wheat is still uncompetitive on the world market.”

Wheat futures for July delivery fell 1.8 percent to settle at $6.0125 a bushel at 1:15 p.m. on the Chicago Board of Trade. Earlier, the price touched $5.9925, the lowest for a most-active contract since Feb. 28.

The grain has slumped 19 percent from the 14-month closing high of $7.39 on May 6. A 20 percent drop heralds a bear market.

Russia Supplies

Wheat gained as much as 23 percent to this year’s peak of $7.44 on May 6 after Russia’s incursion into Ukraine increased speculation that the flow of supplies from the region would be threatened. Instead, Russia boosted shipments, including to first-time buyers Mexico, Peru, Indonesia and the Philippines, Interfax reported last week, citing Dmitry Rylko, director of market researcher Ikar.

This year, the European Union will produce 145.9 million metric tons, the most since 2008, according to analysts surveyed by Bloomberg News. Brazil will harvest 7.37 million tons, 33 percent more than a year earlier, the government said today.

An index of 55 food items dropped 1.2 percent to 207.8 points from a restated 210.3 points in April, UN data show. World food prices are down 3.2 percent from a year earlier. Global supplies of wheat, rice and coarse grains, including corn and barley, rose 8.5 percent to 2.459 billion tons in the 12 months ended May 31, USDA data show.

Corn futures for delivery in July fell 1.2 percent to $4.455 a bushel on the CBOT, after touching $4.4475, the lowest since Feb. 14. Soybean futures for November delivery rose 0.4 percent to $12.295 a bushel in Chicago.