FarmPolicy

November 13, 2019

ERS: Market fundamentals have been the primary driver of recent wheat price spikes

ers

From USDA’s Economic Research Service (ERS), May 13- “U.S. wheat prices have spiked and then fallen along with prices for other commodities over the last 5 years, leading to questions about how factors such as market fundamentals, macroeconomic events, and increased commodity index trading have contributed to these price swings. Recent ERS research measures the relative contribution of different factors to observed price changes during 1991-2011. Findings show that market-specific shocks related to supply and demand for wheat, such as drought impacts on consecutive Australian wheat harvests in 2006-07 and a Russian ban on wheat exports in August 2010, were the dominant cause of price spikes in the three U.S. wheat futures markets. Fluctuations in the global economy associated with broadbased demand shocks such as the Lehman Brothers Holdings, Inc. bankruptcy, were relatively less significant, and there is little evidence to suggest that increased commodity index trading activity contributed to recent price spikes. Find this chart and more analysis in Deconstructing Wheat Price Spikes: A Model of Supply and Demand, Financial Speculation, and Commodity Price Comovement.”

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Ag Economy; Tax Extenders (Biofuels); Immigration; CFTC; and, Climate

Agricultural Economy

Yesterday, the Food and Agriculture Organization of the United Nations (FAO) released its biannual report on global food markets.

Titled, Food Outlook, the report stated that, “Early prospects for 2014 cereal crops point to a decline from the previous year’s record level, but output is nevertheless expected to be the second largest ever. Based on conditions of crops already in the ground and planting intentions for those to be sown later this year and assuming normal weather for the remainder of the season, FAO’s first forecast puts world cereal production in 2014 at around 2 458 million tonnes (including rice in milled terms), some 2.4 percent down from 2013. Wheat and coarse grains would account for the reduction. Total cereal utilization in the new season (2014/15) is forecast to increase by 1.9 percent, which compares with a 4.0 percent rise in 2013/14 [related graph].”

The UN update noted that, “Global wheat production in 2014 is forecast at some 702 million tonnes, 1.9 percent below last year’s record, but still the second largest ever. Much of the reduction is anticipated to be concentrated in Canada, but smaller harvests are also expected in Australia, Morocco, the Syrian Arab Republic, the Russian Federation, Ukraine and the United States, which would more than offset larger outputs in Argentina, Brazil, India, Mexico and Pakistan [related graph].”

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