Market Commentary from International Grains Council

With the exception of rice, export prices of grain and oilseeds fell to their lowest in several months before retracing most of the losses. They showed only a modest overall reduction, the IGC GOI declining by 4%. The early October dip in values coincided with a bearishly interpreted set of US quarterly stocks data, especially for maize (corn), but markets appeared to be mostly influenced by global financial developments, notably the debt crisis in Europe.

Activity in world wheat markets was frequently volatile, much of this reflecting external developments, including currency movements. While global supplies appear ample, with very large deliveries from the Black Sea region, particularly Russia, there were some underlying worries about the next US winter crop, as well as about the availability of premium quality supplies. CME corn futures in the US saw limit losses on 30 September as the market reacted to a much larger than anticipated stocks figure, indicating significantly reduced feed use. A subsequent downward adjustment in the US crop estimate had little impact, with some renewed strength attributed to reports of buying by China, as well as reflecting an oversold market.

There were some bullish elements in the US soyabean market in mid-October, including a reduced official crop estimate and more sales to China, but prices never completely recovered from the lows at the beginning of the month.

Rice price movements were less pronounced if mixed, with firmness in Thai and Vietnam quotations contrasting with a seasonally weaker tone in South Asian markets, as India and Pakistan harvested their main crops.

Grains Outlook for 2011/12

Due to a larger than anticipated carry-in and upward revisions to wheat and maize crop forecasts, the world grains balance has eased somewhat in the past month, although ending stocks are still set to fall for the second successive year. The production forecast is lifted by 13m. tons, to a record 1,819m. (1,750m.), following increased estimates for wheat crops in Kazakhstan and the EU, and for maize in China, the EU, Ukraine and South America. The global grains area is estimated to increase by 1.7%, returning it to that of 2009 after a recovery in Russia from last year’s drought. Maize output is expected to climb to 855m. tons (826m.), the largest ever, while wheat production is forecast at a near-record 684m. tons (651m.). Barley and oats crops are also expected to rise, mainly because of a recovery in Russia, but sorghum output will fall. The upward crop revisions are, to a large extent, absorbed in increased consumption forecasts, particularly for China. Feed use is now expected to rise by 3%, to 769m. tons, 5m. more than projected previously, including 488m. tons of maize and 124m. of wheat.

As the increase in the grains consumption forecast is smaller than that for production, global stocks at the end of 2011/12 are placed higher than before. Moreover, carry-in levels are also revised upwards, especially in the US and Russia, further lifting the end-season forecast, which is up 15m. tons, at 360m. However, the total remains 8m. below the previous year’s level, with global consumption still expected to exceed output. While wheat ending stocks are projected to be at their highest since 2001/02, further falls are in prospect for maize and barley. The grains trade forecast is raised by 6m. tons, to 250m. (243m.), matching the 2008/09 record. Import forecasts have been lifted for wheat in particular, with competitively-priced offers from Russia and other Black Sea region origins appearing to generate additional demand.

WHEAT: While world wheat consumption is forecast to increase at a quicker than normal pace in 2011/12, the second-largest harvest on record should ensure ample availabilities, lifting carryover stocks to their highest in a decade. The global production estimate is boosted by 5m. tons, to 684m. (651m.), after upward revisions for the EU, Kazakhstan and Australia. While the forecast of human food use is raised since last month, there are reductions for feed and industrial use. However, both are still seen rising significantly and growth in total consumption this year is expected to be about double the ten-year average. Nevertheless, world carryover stocks are forecast to exceed 200m. tons for the first time since 2001/02, including a recovery in the eight major exporters. Strong demand for competitively-priced and amplyavailable Black Sea feed and milling wheat contributes to an upward revision in projected wheat trade; at over 132m. tons, this would be second only to the 2008/09 record. Black Sea exports, especially from Russia, have captured a high proportion of demand in the first part of the season. While that country may eventually introduce measures to control shipments beyond a certain level, they are still seen setting new records. Exports by Ukraine are expected to accelerate following the recent removal of taxes.

MAIZE (CORN): World maize production prospects have improved during the past month, with crops forecast to be at, or close to, record highs in many leading growers. Total output is forecast at 855m. tons in 2011/12, up 3.5% from the previous year’s large outturn. Improved availabilities are expected to encourage additional feeding in some countries, with forecasts for China and the EU in particular, higher than before. While feed demand in developing countries is likely to remain firm, strong price competition from lower-grade wheats could cap overall use. Industrial demand is likely to increase at a much slower than average pace, with use by US and EU maize ethanol processors forecast to decline slightly compared to last year. End-of-year stocks are forecast to shrink to a five-year low, but this month’s projection is higher than before, mainly due to upward revisions to official US stocks data. Trade in the year to June 2012 is forecast to be broadly stable, with increases for China, Mexico and North Africa balanced by a sharp reduction in EU import needs.

RICE Reflecting reduced prospects in some Asian producers, notably flood-affected Thailand, the forecast of global rice output in 2011/12 is cut. However, at 459m. tons (451m.), it would still be a record, primarily due to increases in China and India. While total rice use is forecast to expand by 2%, to 457m. tons, the increase in output will still enable a further rise in the global carryover, to around 99m. Within the total, inventories in the five leading suppliers are forecast at an all-time peak of 31.3m. tons (28.6m.), mainly because of increases in India and Thailand. World trade in calendar 2012 is forecast to contract by 3%, to 32.3m. tons, on reduced imports by Far East Asia, despite expectations of a significant increase in buying by the Philippines.

OILSEEDS World soyabean production in 2011/12 is projected to dip to 259.8m. tons (266.6m.), largely the result of a significantly smaller outturn in the US. Solid demand from Asia, particularly China, is expected to boost global trade in soyabeans in 2011/12 to 96.2m. tons (90.6m.). World trade in soyameal is projected to rise to a record 60.1m. tons, 7% higher than last year due to increased buying by the EU and Far East Asian countries.