February 16, 2012

 

 

Due to a recent rally that has defied bearish supply fundamentals, a Spanish merchants said Wednesday (Feb 15) that European grain prices have scope to fall.

 

Francisco Alvarez, president of the Spanish grain merchants' group ACCOE recalled that a year ago Russia, the world's third-largest wheat exporter, had curtailed supplies after a bad harvest in 2010.

 

ACCOE - whose members handle more than 60% of the country's 30 million tonne market - estimates average wheat prices in major importer Spain have risen by 4% in the current market year.

 

"This year, in the EU and eastern Europe, we have 35-40 million tonnes more on offer than last year, so prices at these levels don't make sense," he said in an interview.

 

"In my view, prices ought to come down a little, to more normal and balanced levels," Alvarez added at an annual grain traders' gathering organised by ACCOE in the northern city Zaragoza.

 

Concerns over possible crop damage by severe cold in much of Europe needed to either be dispelled or confirmed, however, before the market could bet on a change in trend.

 

"It's too soon to tell," Alvarez said. "We won't know what crops are like until a couple of months have gone by, when the cold eases and it rains a bit. Crops are in hibernation now, plants are growing downwards."

 

Alvarez said the grain trade had problems passing on high prices to feed compounders and livestock farmers struggling with low producer prices.

 

A legal deadline of 60 days for settling grain purchases had been extended to 75 days, but was not being strictly observed, he added.

 

"Some are paying up after 90 days, even though the law doesn't say that," Alvarez said. "Our problem is we are financing many consumers with economic problems. Many are eating up their savings"

 

"Of course the problem with livestock farming is low prices, because retailers charge much more for marketing than we do for producing, which makes no sense."

 

Alvarez estimated that warehouses across Spain still had some 30% of last summer's old crop in storage, or about five million tonnes, which he said was normal at this time of year.

 

"We have a structural deficit in Spain, but as Galicia and Catalonia are importing, we expect stocks will complete market demand until the harvest begins," he said.

 

For logistical reasons, much of Spain's grain imports head to the remote north western region Galicia, or Catalonia in the northeast, where Spain's pig feed industry - the largest in Europe - is concentrated.

 

Spain is a major buyer of grain on world markets and imports at least 10 million tonnes a year from as far afield as Argentina or Kazakhstan.