June 4, 2009

US grain prices have declined but the weak US dollar, crop failure and seeding delays could help boost prices.

 

Corn, soy and wheat crops suffered from drought in South America and wet weather in the US, while signs of economic recovery hint at improving global food demand, analysts said.

 

Expectations that the dollar will remain weak as the global economy recovers could keep a floor under the dollar-denominated commodity prices, analysts said.

 

The US dollar is near the lowest level in more than five months against a basket of currencies amid signs that the worst of the economic crisis may be over. Investors have started to put cash into riskier assets like commodities, also viewed as a hedge against inflation.

 

The crisis may or may not be over, but if enough people believe in the former then it would be reflected in prices, said Anne Frick, oilseeds analyst with Prudential Bache Commodities.

 

Huge investment funds have boosted grain prices, rekindling memories of the record-high prices of 2008. But few believe that grains are ready to visit those highs again, especially when the economic is just beginning to recover.

 

An economic rebound would increase global food demand, and food supply could be at threat and prices may go higher as some countries face declining crop yields due to weather issues.

 

Brazil's soy crop is projected to be down six percent on-year due to drought, while Argentina's soy production is seen to fall at least 26 percent.

 

US soy has so far filled in the supply gap, but stocks are tumbling to dangerously low levels. US export sales have already met the USDA's full year export forecast with three months left in the marketing year.

 

Export sales have slowed recently even with the weaker dollar, and some Chinese importers have cancelled orders as recent active buying has boosted China's soy stockpile.

 

China, the world's largest soy buyer, accounted for nearly half of US soy export sales in the 2008-09 marketing year.

 

Wet weather has delayed seeding of the new US crop, which could lower yields. But analysts said weather-delayed corn and spring wheat planting could contribute to one to two million-more soy acres.

 

The US export market's focus has been shifting to corn and prices have strengthened due to yield-cutting spring seeding delays and concerns of unplanted acres.

 

Seeding delays in the northern Plains spring wheat region have also helped pushed prices of US wheat higher, along with disease concerns about the winter wheat crop.

 

But wheat export prospects are less bright as recent rallies have pushed US prices too high, analysts said.

 

Plentiful global wheat supplies and rising ocean freight costs may keep key buyers in the Middle East and Africa sourcing wheat closer to home, they said.