Commodities Report: Solid as a Crop So Far
The 2017-18 major crop season in the U.S. will culminate in the coming weeks with another round of solid crop output in the books. The noticeable exceptions are the spring wheat and durum wheat crops, which were shortened due to drought this summer and fell near their smallest levels since 1988. But more importantly, the corn and soybean crops will be historically large despite the various weather challenges during the last several months. We’d offer that new technology, including precision agriculture, have aided these crops immensely. And this could be a sign of what’s to come, which is good news for commodity buyers for sure. Add to this that various other parts of the world are stepping up their grain production and it’s hard to see a longer-term bullish story in the commodity markets. Take the spring wheat markets as an example. Despite hard red spring wheat output this year being the second smallest in nearly 30 years, the market’s reaction has only been modest due in part to ample world wheat supplies. That said, there are always surprises in these markets and the greater risk in most of these is to the upside. But we don’t think that upside is likely very intense for 2018. The adequate corn and soybean supplies are expected to fuel continued solid protein output growth in the U.S. next year. If existing USDA protein production forecasts hold true, the available domestic per capita protein supply in 2018 will be the largest in 11 years. Cheese price inflation could be fairly tepid as well. The world is sitting on a deluge of nonfat dry milk stocks, which should keep a lid on nonfat dry milk prices deep into 2018. This should only encourage cheese production here. Typically, for CME cheese blocks to average above $1.70 annually, nonfat dry milk needs to average above $1.20. Important to note that wage inflation has strengthened some in recent months, which can be a sign of pending stronger commodity inflation. But nothing like we had in reaction to the jump in corn prices a decade ago.
David Maloni is commodity consultant for American Restaurant Association Inc., a food commodity research, forecasting, consulting, and contract risk management organization founded in 1996 specifically advising the US restaurant and hotel industry and supply chain.