High production around the world has given wheat a bearish tone, slowed exports and moved it into competition with maize (corn). Competition for markets is ferocious, say the experts

“A bearish tone persisted in world wheat export markets during December and January, with sustained pressure from heavy nearby supplies and strong export competition,” the International Grains Council (IGC) said in its Grain Market Report (GMR). “There was mild underpinning in December from worries about 2016-17 crops in some regions.

“However, prospects for global output were considered mostly favorable by late January. Day-to-day movements were sometimes triggered by global macroeconomic developments. Since the November GMR, the IGC GOI wheat sub-Index fell by a net 3%.”

U.S. futures continued to be underpinned by a large net short position held by speculative funds, the IGC said. “This helped to keep U.S. export prices at relatively high levels compared with other origins.”

Amid heavy export availabilities, the steepest price declines were in the E.U. and Black Sea region, with local currency weakness in the latter contributing to falls in U.S. dollar-denominated values, it said.

“In Argentina, the removal of export taxes and flotation of the currency resulted in weaker fob values,” it said. “Lower than normal protein in some of the new crop underpinned prices for 12% protein supplies, dropping by only about $4 since the last report, to $196 fob (Up River). However, 10.5% protein was quoted at around $160 fob, down by about $25 since early December and helping to stimulate interest in purchases for feed, including recent shipments to the U.S.”

At the U.K.’s AHDB (Agricultural and Horticultural Development Board) Cereals & Oilseeds, the body which has replaced the former HGCA (Home Grown Cereals Authority), analyst Helen Plant described a change in the dynamics of the wheat market.

“The spread between global wheat and maize futures prices has narrowed in recent weeks, and in some cases is now at its narrowest since mid-2013,” she said in its Prospects publication. “Global maize prices have stayed relatively stable, while wheat prices have declined.

“Arguably, the movements in price relationships are down to the level of comfort of global wheat supplies, rather than concern over maize supplies. 2015-16 wheat harvests are now all but concluded, assuring markets of record production and supply estimates.”

The reduced premium for wheat over maize increases the attractiveness of wheat as a feed grain, potentially switching some feed demand from maize to wheat, she said.

“As global feed usage of maize dwarfs that of wheat, even a relatively small shift from a maize perspective could help lessen the impact of record supplies in the global wheat market,” she said. “There are already indications of some demand switching, for instance the E.U. Commission increased feed usage of wheat and barley at the expense of maize in its latest forecasts.

“Furthermore, the relative supply levels mean that the global wheat market is once more taking a greater influence from maize. While maize (and so total feed grain) supplies remain relatively comfortable, this is likely to keep both maize and wheat prices under pressure. However, the concentration of maize production/exports means the supply and demand situation for the commodity can alter relatively quickly, and either add additional pressure (e.g. 2014-15) or support (e.g. 2012-13) to wheat prices.”

Rabobank, in its Agri Commodities Monthly, also described a bearish picture.

“We have lowered our price forecast further, following continued weak U.S. and E.U. exports, and a very well supplied global market,” Rabobank said. “U.S. exports are dragging 18% behind last year and could prove to be the exporter’s lowest total marketing year since 1971-72. However, in our opinion, the latest downward revisions of the USDA’s U.S. export forecast still do not go far enough and will trigger further reductions in subsequent reports.

“Ferocious competition abroad is dragging global wheat prices lower, as weaker currencies have provided Black Sea and Argentinean exporters with a tremendous competitive advantage over the U.S. on the global market.”

The bank also noted that U.S. supplies have lost competitiveness throughout much of South America. “This should remain in the foreseeable future, following Argentina’s lower wheat export tariff,” it said. “In recent years, Brazilian wheat importers turned to U.S. HRW supplies after the Argentinean government began constricting exports.”

It explained that while Brazil had imported around 1.5 million tonnes by this time last year, imports now stood (mid-February) at 370,000, with no sign of growth.