D E BONDURANT Grain Co’s silos have for decades stored wheat, corn and milo grown by farmers in western Kansas. But the recent winter wheat harvest brought something different.

“I’m putting wheat on the ground now for the first time in my life,” says Gary Gantz, president of the company his great-grandfather founded in 1888. “I was ready for a large crop, but I wasn’t ready for one of this proportion.”

His outdoor wheat pile, 20ft tall, 80ft wide and 200ft long, is evidence that a world grain glut is poised to spill into a fourth straight year. Even though Mr Gantz has added almost a million bushels of capacity to his silos in recent years, all the wheat won’t fit.

Overflowing stocks and large prospective harvests have given grain markets a hard shove in the past month. Both corn and wheat futures have fallen about 20 per cent from recent highs in June. A week ago, contracts of both grains for December 2016 delivery were the lowest since they first traded.

Bumper harvest beckons as stock levels remain high, adding to pressure on prices

The U-turn in agriculture has stalled a rally in commodity markets. The Bloomberg Commodity Index, up 19.6pc in the year to June 30, has dropped 2.8pc since then after grains tugged it lower. In June commodity investors withdrew $1.5bn from agriculture, the biggest monthly outflow of 2016, according to Christopher Louney of RBC Capital Markets.

In the US, the biggest grain exporter and home of futures contracts tracked by investors, the winter wheat harvest is nearly complete. The government expects the average winter wheat field to yield 50.5 bushels an acre, the most on record, while production will rise 10pc year on year to 1.51bn bushels.

The winter wheat crop is being trucked to grain silos such as Mr Gantz’s that still contain corn left over from a hefty harvest last autumn. As of June 1 US corn stocks totalled 4.72bn bushels, the highest for the month since 1988, says the US Department of Agriculture.

“Nobody here has ever seen these kinds of yields. It’s really causing some headaches,” Mr Gantz says.

Adding to the pressure, the outlook is improving for summer-grown crops such as corn and soyabeans. Rains one to five inches above normal have drenched key states such as Illinois, Indiana, Iowa and Nebraska in the past month. The National Weather Service maintains an above-normal temperature outlook for much of the coming month, but good soil moisture will blunt the threat of heat as corn’s sensitive pollination period arrives. “The market has really shifted away from thinking about the risk of a drought to now how much above trend the yield might be,” says Darrel Good, agricultural economist at the University of Illinois.

Anxiety rattled grain markets last spring as the world exited a strong El Niño. Research by Prof Good and Scott Irwin found that a transition from El Niño to its La Niña opposite by summer, as sometimes occurs, risked reducing US corn and soyabean yields.

But Prof Good says so far, conditions have reverted to neutral. “We really haven’t gotten into La Niña at this point, and if we do, that will come in later into the fall and probably not have much impact on the crops here,” he says.

The summer crops will be grown on a lot of land. The USDA last month showed US farmers seeded a record 83.7m acres (33.9m hectares) of soyabeans in the spring and increased acres of corn by 7pc to 94.1m acres, the fourth highest ever.

The grain outlook is also positive in other important regions such as Russia, Ukraine and the EU. The London-based International Grains Council sees total world grains production of 2.026bn tonnes in the coming year, outpacing consumption and bringing stocks to their highest level ever.

“We’re seeing weather co-operating for the main grain production regions everywhere,” says Daniel Pereira, global crop analyst for Geosys, which uses satellite images and weather data to assess farm conditions.

Last Monday, yellow corn - used mainly in animal feed and ethanol fuel - was trading at $3.5275 a bushel for September delivery, down 0.6pc. Hard winter wheat - used in bread - was $4.185 a bushel, down 0.7pc.

Published in Dawn, Business & Finance weekly, July 18th, 2016