Commodity supplies expected to keep prices in check

by Ron Sterk
Share This:
Ron Sterk

The message from most presenters at the 40th annual Sosland Purchasing Seminar held in Kansas City June 4-6 was that prices of most ingredients have some but not robust upside potential this year and next because of ample supplies, albeit declining in some cases, both domestically and globally. While there were exceptions, most notably sugar, ingredient buyers generally received good news about the prices they may pay over the next several months.

That includes such basic commodities as wheat, corn and soybeans, as well as other ingredients such as cocoa and eggs.

Speakers at the Purchasing Seminar noted a myriad of factors that may affect ingredient prices in the coming year. Notable was the current trend in the value of the U.S. dollar which, though volatile and still historically high, appears to be in a downtrend so far in 2017. A weaker dollar tends to be positive for exports of U.S. commodities as they become more competitive on the world market relative to other currencies. That, combined with globally lower exportable supplies of key commodities, including wheat, may bode well for U.S. grain exports, although speakers also predicted ongoing stiff export competition for corn and soybeans from large crops in South America.

Political factors also were noted, including biofuels credits that could have a significant impact on soybean oil demand, trade issues involving sugar with Mexico, dairy with Canada and the much broader renegotiation of the North American Free Trade Agreement, and work on a new farm bill for 2018 in view of proposed sharp reductions in funding for agriculture.

Bill Lapp, Advanced Economic Solutions
Bill Lapp, president of Advanced Economic Solutions, told Purchasing Seminar attendees in the opening session that wheat futures have greater upside than downside price potential in the coming months.
 

There were mixed but improving signals for wheat prices in 2017-18. Wheat futures have greater upside than downside price potential in the coming months, Bill Lapp, president of Advanced Economic Solutions, told Purchasing Seminar attendees in the opening session on June 5.

Mr. Lapp said both domestic and global wheat production will be down sharply this year, including an expected 20% decrease in the United States. But that comes after a year of record high yields of wheat, corn and soybeans, the first “trifecta” since 1979, as well as record high domestic corn and soybeans stocks, record high world wheat stocks and the highest U.S. wheat stocks in 29 years.

A challenge identified in the wheat market was what appears to be a second consecutive year of low average protein in the U.S. hard red winter wheat crop. Although harvest was in its early stages (58% completed in Texas and 25% in Oklahoma as of June 4 but not yet started in other hard winter states, according to the U.S. Department of Agriculture), initial reports indicate low to very low protein. That means protein will have a high value and mostly will have to come from the spring wheat crop, which also is expected to be smaller than a year ago.

For eggs and egg products, Richard Broad, vice-president, Bender Goodman Co., Inc., suggested ample egg production will continue to play a limiting factor in prices. He said growth in the laying flock, largely the result of the build-up in cage-free production without a like decrease in traditional housing, will maintain ample egg supplies and tend to keep egg prices below cost of production, especially for conventionally produced eggs.

Surplus global cocoa bean supplies also will keep a lid on cocoa powder prices, said Hugo van der Goes, vice-president of cocoa, North America, at Barry Callebaut. Although he forecast modest growth in global cocoa bean grind in the next two quarters, he also said cocoa bean stocks were “very comfortable.” On average, product buyers have coverage out about 11 months, Mr. van der Goes said, compared with more than 8 months a year ago and only 6 months two years ago.

One of the few bullish supply and price scenarios was presented for sweeteners by Craig Ruffolo, vice-president, McKeany-Flavell Co. That outlook came during the final days of negotiations on a significant sugar trade deal with Mexico, seen as crucial for sugar and corn sweetener markets in both countries and as a precursor to renegotiation of NAFTA. An agreement in principle was announced June 6, shortly after the Purchasing Seminar concluded.

“This agreement prevented potentially significant and retaliatory actions by the Mexican sugar industry and sets an important tone of good faith leading up to renegotiation of the North American Free Trade Agreement,” said U.S.D.A. secretary George (Sonny) Perdue.

Mr. Ruffolo suggested strong demand for beet sugar (relative to higher-price cane sugar), tightening stocks and lower beet sugar production among other factors would push beet sugar prices higher in 2017-18, while a settlement of the trade issue with Mexico, which would boost raw cane supplies, would contribute to mostly flat refined cane sugar prices. Corn sweetener production, nearly matched with demand, and the sugar trade deal with Mexico that most likely will maintain the major export market for U.S. high-fructose corn syrup, is expected to keep HFCS prices about steady while glucose prices may strengthen on growing demand, Mr. Ruffolo said.

Weather usually is the key determining factor for agricultural production in any given year. Presenters at the Purchasing Seminar suggested a generally benign North American weather forecast for the 2017 growing season. Although there are areas of concern, including developing dryness in the southeast United States and in parts of Canada and the Upper Midwest, which is the key growing area of durum, spring wheat and sugar beets in the United States, it appears weather may have less of a bullish impact on crop production in 2017 than in some years past.

Comment on this Article
We welcome your thoughtful comments. Please comply with our Community rules.

 

 


The views expressed in the comments section of Food Business News do not reflect those of Food Business News or its parent company, Sosland Publishing Co., Kansas City, Mo. Concern regarding a specific comment may be registered with the Editor by clicking the Report Abuse link.