Offre & Demande Agricole (ODA) is an information company aiming at helping farmers cope with price volatility and provide them with the information, training and advice which is crucial in order to maintain margins on the current international and highly volatile grain markets.

In order to give you an insight into the current market situation ODA have provided Farming Online with a brief insight.

Market Analysis

After a period of relative calm in October and early November, the futures markets have picked up. This has been accompanied by a marked fall in prices, with cereals falling back below the $6/bu mark in Chicago well reflecting the comfortable wheat availabilities in the main exporting countries, with ending stocks at 206.1 MT compared to 197.4 in 2010, James Bolesworth from Offre & Demande Agricole told Farming Online.

The wheat market has remained relatively stable since last month in the back of the tight American maize situation. Prices have fluctuated in the €180-190/T bracket on Euronext and between £140-150/T on LIFFE with no strong trend. On a global level, the stock level continues to rise, mainly because of increased production in the Black Sea and Europe. According to Mr Bolesworth, “at just over 206MT, the 2011/12 ending stocks are almost as sluggish as they were in 2009 at 200.9MT”.

Therefore, ODA’s clients have been advised to be well covered and therefore take profit from prices above costs of production and be protected against the expected decline in prices.

In fact, wheat prices have been supported so far by the tight US maize situation where stock/use ratio is just about 6.1% meaning that US maize ending stocks stands at 19.8MT. On top of that, US Ethanol plants have been working at maximum capacity for several weeks, an activity supported by strong demand from incorporators who are working hard in order to take advantage of the tax credit which is expected to expire in 2012. Assuming that the tax credit will not continue, demand from incorporators will fall in January according to ODA. “We expect ethanol production to fall, and thus maize consumption. This would lead to falls in maize prices as well as in all cereal prices”, added ODA. The falls could nonetheless be tempered when the period of competition for acreage between soya and maize in America begins in January. In the longer term, tension in the American maize report will limit a sharp fall in price. The target of $5/bu seems a low point for the campaign.

On the oil markets, crude oil, combined with pressure from Australian canola, is signalling the end of increases in the short-term. This will not last long, said the ODA UK team, for three reasons: tightness in the European rapeseed stocks levels; palm production issues in Malaysia and expected competition between soya and maize for acreage in the United States.
From a fundamental point of view, the Australian canola harvest should bring some pressure to bear on the prices of European rapeseed. Production potential has been revised up in Australia at 2.62MT where harvest is around 20% complete and is progressing at its usual pace. The big Australian crop suggests that the exportable surplus will be greater than expected, particularly to the EU. However, the European stocks are still tight and despite stoppages in some French crushing plants because of industrial dispute, EU crushing targets have been revised up by ODA at 21.7MT for 2011/12. Also, very strong demand from Germany should be a source of constant support for UK prices.

To conclude, ODA expects that “there will thus be no major changes in the markets in the short term, even more so as we enter the Christmas period which is traditionally calm; in the medium term, there is a risk that the support of American maize will disappear. Given that the euro may fall, European cereals have limited potential to fall. We are looking at a range of €160-180/T for cereals prices on Euronext”. In the longer term, however, persistent tightness in the American maize report will prevent a sharp fall in cereal prices. If stocks are not replenished in the US, American maize will maintain its supremacy.

For further information regarding the training and advice offered by ODA, please contact James Bolesworth: james.bolesworth@oda-agri.com  Tel: 01223 894 791/ Mob: 07807 831179 or visit www.oda-agri.co.uk