Agri Monitor
Group Economics Frank Rijkers
Farmers make hay with low grain prices June 2015 Sustained low grain prices favourable for livestock feed purchases The biggest price decline is for soybeans Price expectations revised up for cocoa, but down for sugar and coffee
Figure 1: Grain price index
Source: Thomson Reuters, ABN AMRO Group Economics
Figure 2: European versus American wheat
Source: Thomson Reuters, ABN AMRO Group Economics
Grain season peters out The 2014/2015 season is almost over for grains (corn, wheat, soybeans), making this an ideal time to take stock. The past year will go down in the books as a record year. Favourable weather conditions fuelled production levels to alltime record highs, bringing grain prices under strong pressure. Major adjustments have taken place compared to the prices at the start of the season (July 2014). Soybean prices showed the sharpest fall, losing 30% in the space of one year. Wheat and corn prices also retreated sharply by 19% and 17%, respectively. Alongside the massive production volumes last season which pushed grain prices to their lowest levels in the past five to six years, the oil price slump, the stronger US dollar and renewed favourable production forecasts for the 2015/2016 season placed a lower floor under grain prices. In the absence of fundamental changes, prices are set to remain stable, with the market continuing to move in a fairly predictable direction. Developments driven by short-term focus Grain price adjustments in this period are brought about by all sorts of short-term factors that affect the market. The first is the progress reports as published by various institutions. These reports provide month-to-month harvest, planting, crop progress and quality updates and compare the new data with the multiyear averages. The report of the United States Department of Agriculture (USDA) is awaited with particular interest every month. The most recent USDA report focuses on the changed soybean data. Plantings are lagging behind "normal" levels due to projected rainfall, leading to a slight correction in the output figures. As a consequence, the price for soybeans has risen over 3% since the last report was published (June,10). Wheat prices, by contrast, lost ground, largely due to the weakened export position of the United States as a result of the strong dollar. The monthly USDA report shows that US exports are lagging behind, while stock levels remain high. This pushed the price in a lower direction in the past two weeks. European wheat quotes (Matif) also fell, on the back of these US figures. The Matif prices fall less sharply than the CBoT notations, because of the USD/EUR exchange rates. However, prices are expected to rise slightly in the coming weeks due to reduced production forecasts in Europe as a result of the sustained drought notably in Germany and France. The differences in EUR- and USD-based trading are causing significant volatility in the wheat market and so does the weather. Wheat is also the biggest faller since the start of this year, with prices shedding almost 20%. The low grain prices are dampening feed prices, which will benefit livestock farmers.