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Bumper crop results in wheat bear market

Potential record haul contributes to decline in food prices worldwide

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CHICAGO -- Wheat analysts are the most bearish in a year as farmers reap a record crop contributing to the longest decline in global food prices since 2009.

Nineteen analysts surveyed by Bloomberg News expect prices to fall next week, three were bullish and two neutral, the highest proportion of bears since the survey began in November 2012. Global output may reach a record 696.4 million metric tons in the 2013-14 marketing year that ends in June, 5.5 per cent more than forecast in September, the London-based International Grains Council said Thursday.

Prices for most agricultural commodities are plunging after growers sowed more acres and yields in the U.S., the biggest exporter, recovered from the worst drought since the 1930s. Global food costs tracked by the United Nations tumbled for five consecutive months, the longest streak since the start of 2009. That will help diminish what the international group estimates is an annual food-import bill exceeding $1 trillion.

"The bloom is off the agricultural markets," said Dan Basse, the Chicago-based president of AgResource Co., a research company. "We are in a period where farmers have ramped up supplies around the world and global demand growth is relatively stagnant compared with production. 2014 will be a year of adequate supplies moving toward surplus."

Wheat, the best-performing commodity in 2012, fell 14 per cent to $6.67 a bushel on the Chicago Board of Trade this year. The Standard & Poor's GSCI gauge of 24 raw materials dropped 3.7 per cent and the MSCI All-Country World Index of equities gained 17 per cent. The Bloomberg U.S. Treasury Bond Index lost 1.9 per cent.

Prices fell 6.2 per cent since reaching a four-month high of $7.1125 on Oct. 21 because of easing concern about winter-wheat planting in Ukraine and Russia, which had been delayed by rain. Futures are still retreating after India, the biggest grower after China, reduced its export price this week, which may stimulate shipments.

"Fundamentally, it is pretty bearish," said Dan Hofstad, a risk-management consultant at INTL FCStone Ltd. in London. "It looks like the situation in Eastern Europe was maybe not as bad as perceived a month or two ago. The other story at the forefront is the Indian wheat export program, and what that means for extra volume on the market."

The International Grains Council raised its estimate for combined production from countries in the former Soviet Union by 1.6 per cent to 102.5 million tons, as higher production in Kazakhstan offset smaller-than-expected output in Russia.

Production in Canada, the third-biggest exporter, may be 8.2 per cent larger than previously expected at 33 million tons, the IGC said. The agency left its forecast for U.S. output unchanged at 57.5 million tons. The U.S. Department of Agriculture is scheduled to update its global supply and demand forecasts for grains and oilseeds on Nov. 8.

Wheat supplies are rising just as corn and soybean harvests expand to records, spurring a 19 per cent drop in the S&P GSCI Agriculture Index of eight commodities this year. While lower prices are cutting food costs, they're also curbing income for producing nations. Brazilian soybean exports generated $17.2 billion of income last year, according to data from ITC TradeMap, a venture between the UN and World Trade Organization.

-- Bloomberg News

Republished from the Winnipeg Free Press print edition November 2, 2013 B10

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