(MarketWatch) – Grain prices have already fallen significantly from their drought-induced peaks last summer, but they’re poised for further declines this year as supply fears ease, according to Capital Economics.
Corn prices, in particular, may see a decline to around $5 a bushel by the end of the year, from current levels around $7.22, said Tom Pugh, commodities economist at Capital Economics, in a research note Monday — that’s a drop of about 31%.
“High prices over the last year have encouraged farmers to plant significantly more acres with grains,” he said, and “barring any further adverse weather shocks, this should lead to large increases in global supply” for the 2013/2014 crop year.
Pugh pointed out that the U.S. Department of Agriculture’s preliminary forecast for next year shows U.S. production of corn, wheat and soybeans increasing compared to the pre-drought crop, with corn supply potentially increasing by as much as 17%.
By the end of the year, he forecasts wheat prices to fall to about $6 a bushel from around $7.23 a bushel, and soybeans prices to fall to $11 a bushel from about $14.86. The price forecasts for corn, wheat and soybeans, however, imply that the wheat-corn price spread will widen to about $1 again, said Pugh, with the widening due to falls in the price of corn larger than those of wheat.
Tracking the most-active futures contracts on the Chicago Board of Trade, May corn /quotes/zigman/3098923CK3+0.14%was up 9 cents at $7.13 a bushel on Monday. Prices traded at highs well above $8 last summer. May wheat /quotes/zigman/1769744WK3-0.14%traded at $7.03 a bushel, up 6 cents, after highs well above $9 in the summer of last year. May soybeans /quotes/zigman/1773119SK3-0.54% added 4 cents to $14.75 a bushel after climbing toward $18 last summer.
