Ingredient prices end year on mixed note

by Ron Sterk
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Ron Sterk

KANSAS CITY — Commodity and ingredient prices will end 2017 with mixed changes from a year earlier. Gains include flour, wheat, sugar, eggs and egg products while declines include soybeans, soybean oil, cocoa powder, dry dairy products and dry edible beans. Key outside markets, including equities and crude oil, posted solid gains for the year.

Most of the declines were the result of ample supplies and/or increased export competition while gains may be attributed mostly to higher exports, reduced production and strong demand.

Domestic grain and oilseed production varied widely with soybeans and peanuts record high and dry edible beans up sharply, but corn, wheat, oats, barley, rye, sorghum and rice lower with several down sharply. Weather mostly was benign if not favorable during the key summer growing season with a notable exception of drought in the durum, other spring wheat and small grain region of the Upper Midwest.

But lower or sharply lower domestic production didn’t translate into higher prices for all commodities as global production of wheat, corn and soybeans also increased, providing competition for U.S. exports, especially for wheat.

 


While prices could change in the final week of the year, as of Dec. 20, nearby Kansas City hard red winter wheat futures were up about 3% from the end of 2016, Chicago soft red winter wheat futures were up about 7% and Minneapolis spring wheat futures were up more than 16%. Despite the lowest all-wheat acreage since 1919, winter wheat futures were trading only modestly above contract lows and spring wheat futures slightly above recent lows, all set Dec. 12. Hard winter wheat cash basis levels, though, were up from 10% to more than 400% with the key proteins for bread flour up about 75% to 85%, which means millers paid considerably more for the key wheat used for making bread this year. Higher prices for Minneapolis spring wheat futures and the soaring cash basis on hard red winter reflected two consecutive low-protein hard red winter crops and strong demand for protein from the spring wheat crop. Bread flour prices were up about 15% for the year.

Soybean production in the United States, meanwhile, was up 3% and record high, but nearby futures for soybeans and oil were down only about 3% as the United States exported a record volume of soybeans to China, and stronger demand for soybean meal from the livestock sector boosted the domestic crush.

Dry edible bean prices fell as production jumped 23% from 2016. But dry pea and lentil production plunged more than 40% despite an upsurge in domestic and global demand for such plant protein.

The largest price increase from 2016 was for eggs and egg products. Breaking egg prices were at or near historic lows for much of 2016 mostly due to oversupply resulting from sharply higher cage-free egg production. Prices rebounded modestly through August 2017 and then surged to two-year highs in the last two months of the year as egg production was modestly reduced while both domestic and export demand surged, in part due to avian influenza in several areas around the world and fipronil contamination of eggs in Europe.

Sugar prices also posted sizable gains in 2017 with refined beet sugar up about 22% and refined cane up about 6% from late last year. Refined cane sugar prices advanced and beet sugar declined in 2016 when it appeared food products may have to be labeled for G.M.O. ingredients, resulting in an historically wide price premium for cane sugar over beet sugar near 8c a lb. When a federal law changed the G.M.O. labeling landscape, demand for lower-priced beet sugar surged. Sugar supplies, meanwhile, were tight due to strong domestic demand overall and lower imports from Mexico.

The most significant price declines in 2017 were for dry dairy products. Active processing of milk for butterfat, which saw strong demand globally, as well as active cheese production due to ample milk supplies, resulted in excess supplies of many dry products. Dry whey and low/medium-heat nonfat dry milk prices, for example, were down about 30% from a year ago, with global prices for skim milk products down about 15% as the year ended.

Cocoa powder prices were down about 15% for the year due to ample global cocoa bean supplies, although grinding increased in 2017, suggesting rising demand.

Analysts generally expect major grain (wheat, corn, soybean) prices to be held in check in 2018 by ample global supplies, but as market participants know, there will be no lack of fireworks due to the many factors influencing ingredient markets.

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