Wheat farmers are harvesting a record crop for the fourth time in six years, adding to a global grain glut and cutting costs for food makers from Panera Bread Co. to Domino’s Pizza Inc.
Production will jump 7.7% to 711 million metric tons in the year ending May 30, the biggest expansion since 2009, the World Trade Organization said on Dec. 5. Reserves before next year’s harvest will increase 4%, implying a surplus, the U.S. Department of Agriculture says, raising its outlook by 2.4% from last month’s estimate. Societe Generale SA predicts that Chicago futures will drop 4.6%, to $6.10 a bushel by the second quarter.
Canada, Australia and Russia, the largest exporters after the U.S., increased their estimates for harvests this month. Wheat will join an expanding global agricultural glut as farmers reap record corn, soybean and rice crops. The International Grains Council said last week that output will keep rising through 2019. Cereal costs tracked by the United Nations fell 24% in the past year, more than any food group.
“Supply security is much improved,” reports Dan Basse, the Chicago-based president of AgResource Co., a research company. “There is plenty of supply, and world food prices should remain subdued for the next three to five years with normal weather.”
Wheat tumbled 18%, to $6.395 on the Chicago Board of Trade this year. It’s the third-worst performer after corn and coffee among the eight commodities in the Standard & Poor’s Agriculture Index, which fell 20%, and is heading for the biggest annual drop since 1998. The MSCI All-Country World Index of equities advanced 17% and the Bloomberg Treasury Bond Index lost 2.7%.
Inventories of wheat and feed grains, including corn, will climb to a four-year high of 379 million tons before the start of the 2014 harvest, 12% more than this year, according to the International Grains Council.
Yet even as global supplies increase, stockpiles are dropping in the U.S., where fields are still recovering from the 2012 drought, which was the worst since the 1930s. Inventories before next year’s harvest will drop to 547 million bushels (14.9 million tons), 2% less than a year earlier, according to a Bloomberg survey of 29 analysts.