July 3, 2012

 

World 2012-13 grain stocks revise down to five-year low

 

 

At the close of 2012-13, the estimate for world grain stocks has been slashed by the International Grains Council to a five-year low, citing reduced expectations for wheat production and upgraded hopes for corn demand.

 

The intergovernmental group, which had been expecting global grain inventories to rise over the season, changed its forecast to a nine million-tonne decline, to 360 million tonnes, the lowest supply figure since 2007-08.

 

The downgrade - which took to 23 million tonnes the extent of the world grain harvest that the IGC believes has been lost in the last two months, as heat and dryness have tested crops in China, the former Soviet Union and the US, reflected in the main reduced hopes for wheat production.

 

"The outlook for world wheat production in 2012-13 continued to be affected by unfavourable conditions in some countries, including a further deterioration in crop expectations in Russia," the council said.

 

The estimate for wheat production was trimmed to 665 million tonnes, representing a 30 million-tonne decline on last year's crop.

 

The Russian harvest itself was downgraded by six million tonnes to 49.0 million tonnes.

 

However, corn supplies too will prove scarcer than had been expected, thanks to an eight million-tonne upgrade, to 910 million tonnes, in the forecast for consumption, led by the need to keep fed growing livestock numbers.

 

"With meat consumption expected to increase, feed/residual demand is expected to rise at an above-trend 6%," the IGC said.

 

The forecast for world corn output was actually edged higher, by four million tonnes to 917 million tonnes, despite the concern over the US crops which sent Chicago futures to a fresh nine-month high on Monday (July 2). Although the US crop, the world's biggest, was downgraded by five million tonnes to 350 million tonnes, "prospects elsewhere have become brighter, particularly in China and India".

 

The downgrade in world stocks of grains overall, a set which includes the likes of barley, oats and sorghum too, leaves the stock-to-use ratio at 19.2%, the lowest indeed since the 18.1% in 2007-08. The stocks-to-use ratio is a much-watched metric in commodity markets, signalling the availability of a raw material and therefore the level of competition among buyers, which will have a big impact on prices.

 

For wheat, while the stocks-to-use ratio remains at a relatively high 26.7%, even in the latest data, the proportion of supplies in the hands of leading exporters, rather than tied up in countries such as China and India which tend not to sell, will show a sharp decline. At 58 million tonnes, sapped by poor prospects for Russian output, it will end 2012-13 at a five-year low.

 

"Smaller export surpluses in the Black Sea region will see demand switch to other origins in the year ahead, especially the US," the IGC said.