Pub. 2 2013 Issue 8

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 24 T HE USUALLY QUIET WHEAT MARKET suddenly got more than its fair share of attention this past spring when news surfaced of genetically- modified wheat found growing in an Oregon field. While not a food safety threat to consumers, its unauthorized use led major buyers like Japan to temporarily halt wheat imports from the US Once confirmed as an isolated event, however, trade returned to normal. Since then, fewer headlines have shifted the market’s focus to the tighter than usual supplies, pushing prices higher this fall. The expectation of a rebound in foreign wheat production was put to the test this year due to less-than-ideal growing conditions across parts of Europe and Asia, adding uncertainty and putting some upward pressure on wheat prices this fall despite a backdrop of long-term declines in grain prices. Lately, US and global stockpiles of wheat have been revised downward, suggesting a flat to modestly declining wheat inventories relative to year- ago levels. This is a far cry from US corn stockpiles projected to more than double by next summer. These different dynamics indicate that wheat may again become pricier relative to corn, suggesting feed wheat could lose popularity. Wheat is more widely grown around the world than corn, but big players like the US, the EU, Canada, Australia and Russia dominate the export market. In recent years, eyes have been on the US and the continued drought could cut production an estimated 7% in the 2013/14 growing year. Russia anticipates a 43% increase in output this year, although late summer reports have been less optimistic and could signal rising pressure on wheat prices that was simply non-existent back in June and July. Even from South America, near-term bullish momentum is also possible with Argentina directing more domestic supplies to local flour millers amid high domestic prices. These trends are easing global competition and giving more support to US wheat exports. Future global demand remains to be seen, but early predictions call for a nearly 4% increase in the coming year. So far, China is holding strong, with plans to buy more foreign wheat this year, amid rising domestic feedgrain demand. This would run contrary to the perception that the global economic slowdown can cause grain demand to follow suit, such market evidence is limited. Historically, any declining grain consumption was essentially tied to periods of high prices and limited supplies rather than economic recessions. The versatility of wheat – a major food ingredient and also a feedgrain in livestock production – suggests it would take severe economic hardship to cut wheat demand, which is not in the cards right now. The Chinese economy is indeed slowing, but at a moderate pace. Yet, global wheat consumption is projected to grow next year following a slight demand decline due to tighter supplies and higher prices rather than any significant slowdown in global economic growth. Overall, the wheat market still illustrates strong demand combined with a rebounding supply side, albeit slower than anticipated for 2013/14. This supports wheat prices with a return to a sizable premium over corn that had shrunk in the past year due to tight supplies boosting corn prices. At the farm level, this could impact crop budgets for grain growers who have favored corn over wheat for several years now. Such changes in grain pricing dynamics could shift crop production strategies highlighting the benefit of established agricultural lenders who can demonstrate flexibility and reliability with regard to farmers’ long-term capital needs amid volatile times. All information contained herein has been obtained by MetLife from sources believed by it to be reliable. The analysis, opinions, forecasts and predictions contained herein are believed by MetLife to be as accurate as the data and methodologies will permit. However, MetLife makes no representations or warranties, either express or implied, to any persons as to the completeness, accuracy and reliability of such information, forecast and/or predictions and expressly disclaims any liability with respect to any of the foregoing. For more information, call 720.936.8362 WHEAT SUPPLIES REBOUNDING MORE SLOWLY By Jeff Holiday, Associate Director, MetLife Agricultural Investments 7% 0% -3% -7% 43% 16% 15% 3% 40% 20% 0 20 40 60 80 100 120 140 160 Top Wheat Producers million tons 2012/13 2013/14F % change Source: USDA 2011/12 2012/13 2013/14F % change 13 vs. ‘12 EU 138.1 133.1 142.9 7% -4% China 117.4 121 121 0% 3% India 86.9 94.88 92 -3% 9% US 54.4 61.76 57.5 -7% 14% Russia 56.24 37.7 54 43% -33% Canada 25.3 27.2 31.5 16% 8% Australia 29.9 22.1 25.5 15% -26% Pakistan 25 23.3 24 3% -7% Ukraine 22.3 15.76 22 40% -29% Argentina 15.5 10 12 20% -35% World 697.2 655.2 708.89 8% -6% 14 vs. ‘13 World Wheat Production (million tons)