Global Wheat Glut Seen Mostly Unscathed by Damage to U.S. Crops

(Bloomberg) -- A U.S. snowstorm that sent wheat prices surging this week on concerns about crop damage will do little to stop global inventories piling up.

World stockpiles of the grain will reach the highest level in 17 years by the end of next season, according to the United Nations' Food & Agriculture Organization. With abundant supplies, any impact from recent snow and high winds in the U.S. Midwest will be limited, said Abdolreza Abbassian, a senior economist at the FAO.

“We don't think that what's happening in the U.S. will have a big impact on the global production and the global stockpile,” Rome-based Abbassian said by phone. “You do need a few big and unexpected weather issues to see a sustained support to the markets.”

Wheat futures rallied in Chicago on Monday after snow fell on ripening crops in parts of top grower Kansas, as well as Colorado, Oklahoma and Nebraska at the weekend. Still, expectations of ample supplies of grains, as well as other farm products, helped push the FAO's global food-price index down a second month in April to the lowest since August.

The FAO's gauge of food items fell 1.8 percent in April from a month earlier, it said on its website Thursday. All food commodities tracked by the organization declined, except for meat.

Abbassian's comments that abundant supplies have kept a lid on most agricultural prices echo those made by Glencore Agriculture Chief Executive Officer Chris Mahoney, who recently said there needs to be “a big problem, or a series of problems” to reduce supplies and lift prices.

Wheat stockpiles will rise 3.3 percent to 247.6 million tons at the end of 2017-18 season to the highest level since 2000-01, the FAO estimates. Inventories will increase despite world production declining 2.6 percent to 740 million tons.

For soybeans, bigger-than-expected yields in Brazil and Bolivia mean global output will rise 10 percent to 346.1 million tons in the 2016-17 season, according to the Agricultural Market Information System. The research unit, which was started in 2011 by Group of 20 agriculture ministers, raised its forecast by 3.6 million tons and expects record inventories by the end of the season.

Other highlights of the FAO report:

• World grain trade to drop 2.2 percent to about 386 million tons in 2017-18.
• Global corn production forecast for 2017-18 raised by 3.3 million tons to 1.054 billion tons. 

--With assistance from Isis Almeida and Javier Blas

To contact the reporter on this story: Agnieszka de Sousa in London at atroszkiewic@bloomberg.net.

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Nicholas Larkin, Tony Barrett