Interantional Grains Council - Grain Market Report.

After showing some strength in early November, global grain export prices were again in retreat, though with rice once more the exception. Overall, IGC's GOI index fell by 16 points, or 6%, to a 13 month low. The recent market downturn can be partly ascribed to bearishly perceived market fundamentals, as harvests neared completion in the northern hemisphere and work started south of the equator. But it was also in reaction to deepening financial uncertainties, notably in Europe, affecting nearly all commodities.

Heavy supplies of wheat amid strong export competition, including from new crop grain out of Argentina and Australia, mostly reduced fob values by between $20 and $30 over the past month, narrowing the gap with Black Sea quotations.

Despite initial support from US cash markets and a smaller official crop estimate, CME maize futures in Chicago saw major speculative selling, partly due to increased competition from other exporters but with sentiment considerably dented by worries about the global financial crisis and the collapse of a major brokerage firm.

Similar pressures were evident in oilseed markets, led by a decline in US soyabeans, values of which dipped to their lowest since October 2010.

As measured by IGC’s sub-index for rice, export prices of this cereal remained firm in the past month: within this measure, quotations in Thailand saw further gains, attributed to the country’s severe floods, while those in Vietnam and South Asia weakened.

Reduced grain crop estimates for some major  producers, including for maize in the US, are only  partly offset by increases in the CIS and elsewhere,  trimming the global production total for 2011/12 by  3m. tons from October, to 1,816m. This would still represent an increase of 64m.tons over last year,  largely due to sizeable recoveries in output in Russia,  Ukraine and Kazakhstan. Production of all crops except sorghum will rise this year, with the biggest increases in wheat and maize. Southern hemisphere prospects remain favourable, with rains in South America and Australia mostly boosting yield expectations for wheat and helpful for plantings of maize and sorghum.

Consumption of grains will also increase in 2011/12, especially in the feed sector, including a marked rebound in Russia after the previous year’s drought. At 1,826m.tons, world use  is expected to show a rise of 2.2% from the previous  year. However, a feature this year will be the marked slowdown in the expansion of industrial use, set to rise by only 1.7%, to 303m. tons. Within this figure, the use of grains in fuel ethanol, which has displayed huge growth in the past decade, is expected to stay close to last year’s 147m. tons, assuming the use of  maize for this purpose in the US declines slightly.  Forecast, the projection of world carryover stocks is  unchanged from last month, at 360m. tons.  However, the total for the eight major exporters is trimmed by 3m. tons, largely because of a reduced  stocks projection in the EU. World trade in grains in  2011/12 (July/June) is expected to climb by 11m.  tons to a record 254m., 4m. more than forecast  previously, reflecting larger than anticipated wheat  purchases after this season’s marked upturn in  medium and lower grade supplies, especially from  the Black Sea region, whose total grain shipments  are set to total 55m. tons, up from only 22m. last year.

WHEAT: The second largest world wheat crop ever and ample carry-in stocks from last year, have  harply boosted global availabilities in 2011/12.  While use is rising at a faster than normal pace, world stocks at the end of the season are still  expected to climb to their highest level in a decade.  Compared with last month, the estimate of world  production is 1m. tons lower, at 683m., including a  slight downward revision in the US, where the spring  wheat crop was even smaller than expected.  Stronger than previously projected feed use adds  another 2m. tons to the global consumption forecast,  at 679m., boosting the annual percentage increase to  about three times the longer-term trend. Because of  the increased demand figure, the forecast of global  carryover stocks is 2m. tons lower than last month, at  200m., but these would still be the largest since  2001/02. The world trade forecast is lifted by 3m.  tons from before to nearly 135m., only slightly below  the 2008/09 record. Rather than reflecting a supply  shortfall in any one country or region (as it did in  2008/09, when Iran's imports were higher than  usual), import demand appears strong in a wide  range of countries, aided by competitive pricing in the  major exporters, especially for lower and medium  grades.