The US Department of Agriculture in its latest update from October put world wheat ending stocks at 277 million tons compared with 321 million tons a year ago. The next update from the USDA will be released on November 9 and prior to that the UN FAO will publish its monthly food price index this Thursday. The index which comprises 95 price quotes across five different categories from vegetable oils, cereals, sugar to dairy and meat reached a ten-year high in September, representing a year-on-year increase of 32.7%.
Adding to the current unease about the prospect for the winter and spring production of wheat and other key crops, has been the recent surge in the cost of fertilizer. The market has been hit hard by the natural gas crunch which in Europe has forced a number of nitrogen-fertilizer plants to halt or reduce production. A gauge of western European prices for ammonia, used to make nitrogen fertilizer, has recently surged to a 13-year high above $900/tons, close to triple the average price seen during the previous five years. These developments raising the risk for either a lower usage of fertilizer or a switch to less fertilizer intensive crops.
With buyers increasingly competing for supplies the market will look for some relief from the upcoming in harvests in Argentina and Australia, taking place from now until January. The outlook for production in both countries look promising with the Argentine crop expected to reach 19.8 million tons (Source: Buenos Aires Grains Exchange) and 32.6 million tons in Australia (Source: Abares), with is just 2% below last season’s record output.