A glut in grains last year caused prices of wheat, corn and soybeans to slide to the lowest in five years, as global production soared on account of increased planting, extremely favourable weather and limited disruptions. The slide has extended well into this year, and so far it has not shown any significant signs of slowing.
Surprisingly good weather over key growing areas in the US and South America, coupled with robust exports from Russia and Ukraine despite regional conflict between the two countries,are seen as indications that the price slump is here to stay.
“There have just been ample supplies and this year there is expected to be another record harvest for both wheat and corn,” Hamish Smith of Capital Economics said as quoted by City A.M. “I am quite bearish on prices this year... I don’t think there is likely to be any shortage of crops.”
Wheat and corn futures have been in steady decline over the past month, with US July wheat on the Chicago Board of Trade losing about six percent to near $4.75 per bushel, down more than 35 percent on an annual basis, and corn was seen dropping seven percent to about $3.64, a 30 percent decline year-on-year.
Soybeans have been trading mostly sideways in April, orbiting $9.70 per bushel, about 40 percent lower as compared with April of 2014.
The depressed prices were seen by some as an opportunity to go short, while the moderate, though brief rallies (like the four percent daily gain for wheat on March 30) could present an enticing opportunity to sell.
“The downward trend is going to continue across the markets and I would suggest that, if you want to be aggressive, you could get your short positions on now,” said David Madden of IG. “If you want to be cautious, or a bit more sensible, any rallies you see should be used as opportunities to sell.”
However, not all experts were confident that it’s all bear territory in the mid-term for grains. The potential of El Nino to disrupt bearish weather patterns, combined with lower planting levels, due to the lower grains price in general, could lead to a moderate rise in wheat and grains, argued Nitesh Shah of ETF Securities.
“We doubt there will be perfect weather conditions two years in a row. For wheat and corn we do think there are opportunities [to rise],” Shah said, adding that soybeans are unlikely to break higher any time soon.