Consumer reaps benefits of low wheat prices

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Harvesting agriculture

Consumer reaps benefits of low wheat prices

  • High stock levels and strong US dollar undermine wheat price.
  • Possibly lower food prices in 2015.
  • Weak Brazilian real weighs on coffee and sugar prices.

2015/2016 cereal harvest likely among biggest ever

In 2015 and 2016, consumers will continue to reap the benefits of agricultural overcapacity and the euro’s depreciation. Barring unforeseen weather conditions, ABN AMRO is expecting the 2015/2016 cereal harvest to enter the top three of biggest harvests ever - despite a likely drop in production. Total production for the next two years will be 2 per cent below 2014's figure, yet that still leaves it amply above the multiannual average. This means worldwide stock levels will remain relatively high. Consequently, ABN AMRO assumes cereal prices will remain low, and sees consumers enjoying a possible drop in food prices. Indeed, wheat prices in particular are broadly following the movements of the euro-dollar exchange rate.

Cereal prices have been influenced by high production figures for some time now. Late 2014, wheat prices showed a temporary surge, on the back of new export orders for America and pressure on production figures at that time. But as the dollar gains further strength, wheat prices have dropped by 7 per cent to their lowest levels since 2010.

For corn as well, ABN AMRO is anticipating a slightly more modest harvest in 2015 and 2016. Corn production is projected to decline by 5 per cent, but this forecast remains 8 per cent above the ten-year average. Meanwhile, consumption is not likely to grow significantly, resulting in very high stock levels.

Lower coffee and sugar prices due to decline Brazilian Real

Like cereal prices, coffee, cocoa and sugar prices are heavily influenced by projected supply and demand trends. ABN AMRO has observed little change in these in the past few months. Cocoa producers need to focus on lowering their production in the short term, partially because demand from Asia is dwindling in the face of high prices.

Over the past few weeks, coffee and sugar prices have fallen due to various factors, including the Brazilian real's decline in value. Coffee prices have dropped by over 10 per cent in the past four weeks. Sugar prices are down by 4 per cent, leaving them at a five-year record low. ABN AMRO expects prices to bottom out at their current levels. In the next few months demand will outweigh supply, causing prices to recuperate slightly. But for now, coffee and chocolate lovers can look forward to paying less for their guilty pleasures.

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