Global grain gains

Global grain prices have accelerated in recent months as deteriorating pasture conditions have become a concern across many key grain producing countries.

ABARES, in their Agricultural Commodities: June quarter 2017 report, forecast 2017-18 Australian winter crop production to decrease by 33% to 40 million tonnes, as dry seasonal conditions are likely to negatively impact crop yields across the grain belt of Australia. It is important to mention that the Australian crop harvest in 2016-17 was the highest yielding on record.

Darling Downs (Queensland) wheat prices averaged $324/tonne in July, 11% higher month-on-month and a considerable 44% increase since the beginning of the calendar year (Profarmer). Seasonal conditions and global grain price movements have played a fundamental role in this price shift.

Similar price spikes have occurred previously at this time of year, as illustrated in the chart below. Prices, however, ultimately collapsed in 2016-17 under the weight of record harvests. Current prices may be more sustainable this time around as global production is forecast to decline. World wheat production is forecast to fall by 2% year-on-year in 2017-18, to 737 million tonnes.

The latest USDA World Agricultural Supply and Demand Estimates (WASDE) forecasts US wheat production in 2017–18 to be 50 million tonnes, revised lower as a result of an anticipated 25% decline in winter wheat production.

Key wheat producing states in the US (Montana, North Dakota and South Dakota) are experiencing the worst drought in decades. Worsening crop conditions in the US pushed high-protein wheat values higher, underpinning the FAO Cereal Price Index, which hit a one-year high of 154.3 points in June.