‘More of the same’ may define 2016
Dec. 29, 2015
Grain and dairy markets mostly struggled with ample supplies and weak prices in 2015, while (global) sugar rebounded. Eggs and egg products had their own story with record high prices as the result of the worst outbreak of highly pathogenic avian influenza (A.I.) in U.S. history. With the exception of eggs, it may be more of the same in 2016.
Grains especially, which depend heavily on exports, had added pressure this year from a strong U.S. dollar, which may strengthen further in 2016 after the Federal Reserve raised interest rates for the first time in nine years in late December and is expected to announce additional increases. Multi-year lows in crude oil prices added still more pressure to corn, soybeans and (global) sugar due to competition with ethanol and biodiesel.
Wheat futures hit contract and multi-year lows in November (Minneapolis) and December (Chicago and Kansas City contracts). During Christmas week, Kansas City March wheat was down about 25% from a year ago while Chicago and Minneapolis contracts were down about 20%. Although U.S. 2015 wheat production was up only 1% from 2014, values suffered from ample global supplies (third consecutive record world production) and the strong dollar that sent 2014-15 U.S. exports down 27% from a year earlier with a 6% decline forecast for 2015-16, although most analysts expect an even larger decline with export shipments trailing the year-ago pace by 14% as of Dec. 17.
March corn futures last week were down about 10% from a year ago, with the market also facing mostly negative fundamentals. Production was down 4% from 2014’s record high (and still the third highest on record), but domestic demand was flat and export sales were forecast to drop 6% from 2014-15. Marketing-year-to-date corn exports as of Dec. 17 were down 22% from the same period last year.
Grain prices weak while the egg market seeks ‘normalcy.'
The soy complex wasn’t faring any better. March soybean futures last week were down about 15% from the end of 2014, soybean meal was down more than 20% and soybean oil was down about 5%. The strong dollar and fierce competition from South American soybean markets weighed. Soybean oil got a boost from the Environmental Protection Agency’s higher mandate for biodiesel and Congress’ renewal of the $1 a gallon tax credit.
Rising domestic and global milk production and trade shifts involving Russia and China resulted in struggles for the U.S. and global dairy industry in 2015, with global prices for some dry products hitting 13-year lows in August. U.S dry product values also saw multi-year lows amid ample supplies and limited export demand, with values ending the year from 25% to 60% below year-ago levels. But butter prices hit record highs in late September amid strong domestic demand, and ended the year up about 25%. Cheese also has seen good demand with prices only modestly down for the year. Most in the industry see limited opportunity for significant recovery in dairy prices during 2016 as milk supplies continue to grow.
Domestic bulk refined sugar prices ended the year down 3c to 4c a lb from last year, and were down 15% to 20% from October 2014 highs. Settlement of a trade dispute with Mexico resulted in more stable supplies in the United States, but at a higher price due to a floor under prices for Mexican exports to the United States. Prices are expected to remain stable through 2016. Globally, raw sugar prices posted a strong rally from multi-year lows as the market in 2015-16 shifts to the first global deficit in six years.
Eggs were a unique story in 2015 as A.I. wiped out about 38 million birds, the vast majority being layers of eggs for the processing industry, resulting in record high egg and egg product prices in August that were in some cases triple those seen before the outbreak. Prices have since come crashing down, with breaking egg prices down more than 50% from a year ago and below the cost of production in some cases. Egg product prices also were well off A.I.-induced record highs, with dried, frozen and liquid yolk still above year-ago levels but whites below year-ago and whole eggs mixed. Barring a recurrence of A.I. next year, traders expect much more normalcy in egg and egg product markets, with prices continuing to adjust.