Wheat Bears Prevail as Demand Slows for Record Crop: Commodities

(Businessweek) – Wheat analysts are the most bearish since July on speculation the grain’s biggest premium to corn in three years will curb demand after farmers reaped a record crop.

Thirteen analysts surveyed by Bloomberg News expect prices to fall next week, five are bullish and six neutral, the highest proportion of bears since July 26. The grain tumbled as much as 33 percent from a four-year high in July 2012 as drought eased in the U.S. The grain rallied 9.5 percent since reaching a 14-month low in August on speculation that crop damage in Russia and Argentina would boost demand for U.S. supply.

Wheat futures in Chicago cost $2.59 a bushel more than corn on Oct. 11, the most since September 2010. Global wheat production in the 2013-14 season that began June 1 will jump 8.2 percent to a record 708.9 million metric tons, the U.S. Department of Agriculture said last month. More than 25 percent of the crop planted for harvesting next year is off to an above-average start, Commodity Weather Group LLC said Oct. 16.

“Demand news may not live up to the expectations built into the recent rally,” said Dale Durchholz, a senior market analyst for AgriVisor LLC in Bloomington, Illinois, who advises selling the grain. “The global wheat production outlook next year appears good.”

Wheat, last year’s best-performing commodity, slipped 11 percent to $6.9575 a bushel on the Chicago Board of Trade since the start of January. The Standard & Poor’s GSCI gauge of 24 raw materials dropped 1.5 percent and the MSCI All-Country World Index of equities gained 16 percent. The Bloomberg U.S. Treasury Bond Index lost 2.2 percent.

USDA Estimate

The USDA raised its estimate for global wheat output to 708.9 million tons on Sept. 12. That compares with its August projection of 705.4 million tons and 655.2 million tons last year. Major exporting nations outside the U.S. will harvest 211.9 million tons compared with 208.37 million tons forecast in August and 10 percent more than 192.33 million tons last year.

Canadian farmers may harvest a record 33 million tons, 22 percent more than a year earlier, Statistics Canada said Oct. 4. Prices will drop to $6.50 in three months, 6.6 percent less than now, Goldman Sachs Group Inc. estimates.

Brazil and China buying to restock inventories spurred a 3.7 percent gain in prices last month, the most since April. U.S. sales since June 1 jumped 38 percent from last year as of Sept. 19 and export licenses issued by the European Union climbed 71 percent, government data show. U.S. wheat reserves as of June 1 may fall to 544 million bushels, according to a Bloomberg survey of 27 analysts and trading firms this month. That’s down from the USDA’s September estimate of 561 million bushels and the lowest since 2008.

Global Consumption

Global usage will rise 3.8 percent, trailing the gain in output for the second time in three years, expanding inventories 1.4 percent. The USDA hasn’t updated data on its website this month because of the partial government shutdown from Oct. 1 through Oct. 16.

Corn and soybean traders are bearish for a third week, the worst run for the grain in a month and the longest stretch for the oilseed since July. Fourteen of 25 surveyed anticipate lower corn prices and nine said it will rise, while 12 of 26 said soybeans will drop and 11 expect higher prices. Corn fell 36 percent to $4.4525 a bushel this year in Chicago as soybeans dropped 7.9 percent to $12.9775 a bushel.

Eight of 16 people surveyed expect raw sugar to climb next week and six were bearish. The commodity lost 1.7 percent to 19.18 cents a pound on ICE Futures U.S. in New York this year.

Six traders and analysts surveyed expect copper to gain next week, three were bearish and four neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, dropped 8.3 percent to $7,276 a ton this year.

Gold Survey

Sixteen of 27 surveyed said gold would advance next week, nine were bearish and two neutral. The metal slid 21 percent to $1,321.69 an ounce in London this year. Prices reached the highest in more than a week today as the Bloomberg U.S. Dollar Index slid to the lowest since February on speculation disruption from the U.S. debt-ceiling debate would hamper growth and spur the Federal Reserve to postpone slowing stimulus.

Bullion is set for its first annual loss in 13 years and more than $61 billion was erased from the value of gold-backed exchange-traded product holdings as some investors lost faith in the metal as a store of value. Fed policy makers unexpectedly refrained from curbing bond buying at their Sept. 17-18 meeting and Pacific Investment Management Co. and BlackRock Inc. said the central bank will postpone tapering its debt buying.

“You’re going to continue to have some support from the Fed,” said Carole Ferguson, an analyst at SP Angel Corporate Finance LLP, a broker and adviser in London. “That will support gold at these levels. It’s good news for commodities.”