New figures released by the US government this week project 2004/05 global wheat production is up 1.3 million tons, to a 'record' 622 million tons, up 13 per cent from last year.
Despite the 'record' stocks, investment bank Goldman Sachs cautions an 'upside price potential' is the greatest for wheat, which is now pricing about 20 per cent below 'our estimated fair value' of 357 cents a bushel.
Wheat, along with corn and soy, are the starting point for a range of food ingredients, from starch to gluten, used widely in food applications. But food makers and ingredients firms across the world have been affected by rising prices for basic food commodities.
In each of the last four years world grain production has fallen short of consumption, forcing a draw-down of global stocks for wheat, rice, corn and soybeans to 30-year lows. Soybean prices recently hit 15-year highs and wheat and corn seven-year highs.
But there were signs at the end of last year that stocks would improve on 2004 harvests. A recent report issued by the UN-backed Food and Agriculture Organisation (FAO) reflected this cautious optimism, predicting that world cereal production should have hit a record 2.04 billion tonnes in 2004, an increase in inventories for the first time in five years.
For Goldman Sachs, price risk is also applicable to corn. Despite a lift in crops, corn is still running on low inventories, leaving the price exposed. " Prices are unlikely to gain upward momentum until the spring, when the market shifts its focus to the new crop year in the US," the bank predicted.
Global soybeanproduction has slipped by 2.2 million tons to 228.6 million tons. But global oilseed ending stocks for 2004/05 are up 1 million tons to67.2 million tons as lower projected crush more than offsets reducedoilseed production.
According to the US commodity report, lower crush reflects reduced global protein consumption, primarily for soybean meal in the EU. Soybean imports, crush, and soybean meal consumption for China are all raised this month.