MARKET COMMENTARY

Global grain and oilseed prices, having in mid-December dipped to their lowest in 15 months, showed some renewed firmness in subsequent weeks, largely triggered by declining crop prospects in South America, before again weakening on bearishly construed US supply and demand data.

Global financial concerns continued to make for uncertain trading conditions throughout this period.

IGC’s Grains and Oilseeds Index showed only a minor gain, remaining around 17% below the peaks seen in 2011, but still well above the lows of early 2010.

Wheat supplies were augmented by recent large southern hemisphere harvests, while the outlook for the next global crop appears broadly favourable, despite remaining winter crop worries in the US and Ukraine.

For maize (corn), much of the focus was on the impact of this season’s dry conditions on upcoming harvests in Argentina and Brazil, although immediate availabilities remained comfortable, as further evidenced by somewhat larger than anticipated US supply figures. Despite occasional rains in South America’s main growing areas, indicating a weakening of the La Niña weather pattern, soyabean markets factored in some yield losses, values firming during the past two months.

In contrast to other grains, rice export quotations fell steadily over the period in the face of ample supplies, especially in South Asia. Recent falls in ocean freight rates helped to trim import costs for many buyers

The global grains outlook for 2011/12 eased somewhat in the past two months as crop estimates for wheat and maize were revised upwards, notably in China. At a record 1,830m. tons, the total production figure is 14m. higher than before and exceeds last year’s by 80m.

However, uncertainty remains about the size of key maize crops still to be harvested in South America and southern Africa. A long spell of hot and dry weather has cut yield prospects in Argentina and Brazil, also reducing export forecasts.

The higher world crop figure is partly balanced by increased use estimates, especially in the feed and industrial sectors, bringing the global consumption forecast to 1,831m. tons, broadly matching production. While total carryover stocks are therefore placed higher than before, now only marginally below last season’s figure, they remain historically low.

Moreover, aggregate end-season stocks in the major grain exporters, while also placed higher than before, at 130m. tons, will remain smaller than last year’s already much-reduced total (137m.). Wheat stocks will rise but those of maize and barley are expected to decline. A significant expansion in trade is expected in 2011/12, to 253m. tons, boosted by near-record wheat buying, especially of medium and lower grades, and an upturn in barley.

World Estimates.

WHEAT:

The estimate of world wheat production in 2011 is boosted by 7m. tons since the November Market Report, to a record 690m. Much of the increase reflects better than anticipated results in the southern hemisphere, especially in Argentina and Australia, but there are also sizeable upward revisions for China and Kazakhstan.

Approximately half of the increase in the global supply figure is absorbed by greater feed use, as competitive prices relative to maize continue to capture additional demand. However, world stocks at the end of 2011/12 are revised higher and are now seen reaching 204m. tons, only slightly below the record of 206m. in 1999/00. Major exporters’ stocks are projected to rise significantly in Kazakhstan and Ukraine, but those in the EU and US are to stay broadly unchanged. Much of this year’s increase in stocks will be in China, and therefore largely inaccessible to the global market. At 135.4m. tons, global trade is now forecast to be only 1.4m. short of the 2008/09 record, aided by strong demand for medium and lower-grade wheats.

MAIZE (CORN):

Despite a smaller US crop and a worsening outlook for South America, total maize production in 2011/12 is forecast to increase by 4%, to a record 861m. tons. Harvests in China and Ukraine were especially large and, although forecasts have been reduced this month, Argentina and Brazil are still expected to produce record crops. Driven by an above-trend rise in feed use, world demand is forecast to increase by almost 3%, in line with growth last year, but below the recent average. Due to flatter ethanol demand, global with this month’s 2m. tons rise reflecting increases for the US and China. US stocks will remain very tight, down by more than a quarter from their opening level.

Firm demand is expected to maintain world trade close to the previous year’s 94m. tons. industrial use is forecast to expand less quickly than in recent years. Global ending stocks are forecast at a five-year low, with this month’s 2m. tons rise reflecting increases for the US and China. US stocks will remain very tight, down by more than a quarter from their opening level. Firm demand is expected to maintain world trade close to the previous year’s 94m. tons.

Global outlook

Wheat Production

The world wheat area for the 2012 harvest is projected to expand by 1.7%, to 225m. ha, the largest since 1998. Most of the increase is expected in North America and the CIS, boosted by attractive domestic and international prices. The forecast is based on normal weather conditions for the rest of the growing season. Aside from dryness in parts of the US and Ukraine, the condition of winter wheat in the northern hemisphere is mostly reported to be good. Taking into account an expected increase in spring wheat plantings in North America and assuming average yields (following last year’s high), world production is projected at 685m. tons, down by 5m. from the 2011/12 record, but well above the five-year average of 663m.

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