Everywhere you look there’s still more evidence that the world economy is grappling with a global deflationary supply glut.
To be sure, this wasn’t supposed to happen.
Trillions in central bank cash and seven years of ZIRP across DMs was supposed to give a defibrillator shock to global demand and trade. Instead, the wealth effect never trickled down (surprise!) and wide open capital markets only served to keep insolvent producers in business, contributing to still more supply as everyone hangs on until the bitter end. As China’s slowdown continues unabated, the commodity hoarding becomes more evident and indeed on Thursday, The International Grains Council reported that global grain stocks are forecast to hit 447 million metric tons, the highest level in 29 years.
From the report:
End-season grain stocks in 2015/16 (aggregate of respective local marketing years) are now placed at 447m t, up fractionally y/y. While carryovers of wheat, barley, sorghum and oats are expected to increase, maize inventories are seen retreating slightly from last year’s levels. Trade in the year ending June 2016 is forecast to be down by 2% y/y. As China has recently been a heavy importer of feedstuffs, including sorghum, barley and DDG, traders are wary of potential changes to state support mechanisms, which could alter buying patterns.
And more from Bloomberg:
Wheat and corn futures in Chicago are heading for a third year of losses after back-to-back bumper global harvests and world wheat production this year will match last season’s record 720 million tons, the IGC said. European wheat crops escaped damage from heat this summer, and prospects for the U.S. corn harvest have improved, said Amy Reynolds, a senior economist at the council.
Corn futures declined 6.2 percent this year on the Chicago Board of Trade and wheat slipped 17 percent. The commodity is trading about 6 percent above a five-year low set in May.
France, the European Union’s largest wheat grower, will harvest 41 million tons of the grain, the IGC said. That’s higher than FranceAgriMer’s outlook earlier this month for a record 40.4 million tons. Surging supplies of grain have filled up silos in Rouen and Dunkirk and sent futures in Paris to a nine-month low.
So in the end, it's simply more oversupply in the face of still depressed demand with no hope of a turnaround on the horizon as China lands hard and consumers are constrained by lackluster wage growth and subpar DM economic "recoveries."
We'll close with what we said on Sunday in "Global Trade In Freefall: Container Freight Rates From Asia To Europe Crash 60% In Three Weeks":
For now, however, printing money no longer equates to boosting global trade. In fact, easy monetary policy now appears to be backfiring, as even the "market" has figured out.
So, sarcasm aside, what really happens next, to both shipping, trade, the global economy and markets? Sadly, unless central planning finally works after 7 years of failing ever upward... this.
* * *
Full IGC report: