Rising demand may push up grain prices despite high output

Global foodgrain prices are likely to remain high in the coming months despite high output estimates this season.

Bad weather in Brazil and Russia and rising global demand have made the grain market sensitive. The assessment of the damage due to dry weather in Russia, Western Australia and South America and floods in India, China and Pakistan is yet to be done. This is offering grain traders speculative opportunity on futures platforms.

As a consequence, foodgrain prices have started moving up. Corn prices, for example, rose to $5.2375 a bushel in New York, before closing at $5.0825 on Tuesday. CBOT soybeans for November delivery rose 5-1/2 cents, or 0.5 per cent, to $10.90 a bushel on Tuesday. Soybean prices were led by concerns over the impact of frost in Canada on the canola crop, dry weather in South America and the prospect that the sharp recent rise in corn prices may result in lower soy plantings in the US.

Rabobank, in its September 16 report, has raised concerns over movement of grain prices. The downward revision in US corn yield to 162.5 bu/acre from 165 bu/acre about a month earlier has raised concerns. Similarly, China’s total corn availability forecast of 166 million tonnes (mt) this season is unlikely to be met due to floods in many parts of the country.

Anxieties ahead
Moving ahead, the Russian market is increasingly focused on setbacks to new winter crop plantings. The country is likely to see a substantial contraction in planted area this season due to poor subsoil moisture. Even areas that miss winter wheat planting and get picked up for spring crops are expected to have inferior yields.

This has significant implications for next season’s global wheat market. Anecdotal reports suggest planting progress in Russia is five to 25 per cent less than normal, says Rabobank.

Cropping farmers globally are set for a bumper 12 months, with prices for grain, oilseed and cotton at very high levels. The challenge for the market now is to ensure that farmers plant enough relevant crops to meet the 2011 demand. The current prices suggest soybean plantings will increase again at the expense of corn in South America, with cotton at 15-year highs likely to gain acreage in the central west of Brazil.

In the European Union, wheat prices need to encourage additional planting for the next season’s crop. A major battle for acres is building in the US, with wheat expected to recover some of the 5.5 million acres lost to other crops over the past couple of seasons.

Australia’s 2010-11 wheat exports may fall short of forecast for near-record shipments, as dry weather threatens crops in the country’s top grain-exporting state, Western Australia. Also, Russian grain stocks at large and medium-sized farms stood at 21.55 mt as of August 31, compared to 29 mt a year before. The dramatic decline in grain availability has threatened price control.

Cereals
The United Nations Food and Agriculture Organization (FAO) has lowered forecast for world cereal production in 2010 by 41 mt to 2,238 mt from 2,279 mt reported in June. However, even at this lower level, world cereal output in 2010 will be the third highest on record and above the five-year average. Among the major cereals, wheat accounted for most of the cut, reflecting mainly smaller crops in leading producers in the CIS, due to adverse weather.

Under the present forecast, world cereal utilisation will slightly exceed production in 2010-11. This would trigger a two per cent contraction in world ending stocks from their eight-year-high opening levels and a small decline in world cereal stocks-to-use ratio, FAO said.