September 3, 2004

 

 

EU 2004-05 Corn Price Outlook Subdued

 

The corn price outlook in the European Union for the 2004-05 marketing year is subdued as rain in the U.K., northern Germany and Denmark is upping availability of feed wheat. This will compete with corn for use in feed recipes, traders said Thursday.

 

After the poor corn harvest during the 2003-04 marketing year, output levels are expected to rebound to normal to above average levels. Drought had earlier cut the corn harvest across Europe significantly.

 

"We won't see a record harvest, but it looks like we'll get a good-sized harvest. Estimates are running between 15 to 15.5 million metric tons," a France-based trader said.

 

Prices in the E.U.'s main corn producer France are near the E.U. grain intervention level at around EUR112-EUR113/ton for January-March, basis July and delivered La Pallice, after spiking to more than EUR160/ton during the last season.

 

Then the E.U. had to attract sizeable imports while hot temperatures also resulted in a high-quality wheat harvest, with limited availability of feed wheat, which allowed corn prices to rise with little restriction.

 

However, main producers France, Hungary and Italy are on track to produce good-sized harvests while more changeable weather during much of the summer and persistent rain during August in Northern Europe means that feed wheat availability will be sizeable this campaign, traders said.

 

Prices on the benchmark market in France are expected to remain close to the E.U. grain intervention price of EUR101.31/ton, with traders expecting prices to fluctuate between EUR105/ton and EUR120/ton on a delivered basis for the 2004-05 campaign.

 

"Everyone in the market is bearish since the increased percentage of feed wheat this year in the U.K., Denmark, Northern Germany and Northern France is weighing on prices. Feed compounders have also not sold much feed since their clients are saying that prices should go down as feed wheat and corn are cheaper," a trader said.

 

Some feed compounders located close to the Danube river, a major transport route for grains from central Europe, are also keeping an eye on the likely uptake of corn for intervention in Hungary.

 

Organization of storage capacity and transport to intervention stores doesn't appear to be sufficient to ensure that prices for Hungarian corn on the open market don't slip beneath the intervention price, traders said.

 

This has resulted in lower corn prices in Eastern France - close to transport channels for Hungarian corn - than at the French coast.

 

However, since the Danube is unreliable in terms of water levels, traders are unsure how much feed compounders are willing to rely on deliveries of cheaper corn from Hungary.

 

The E.U. is expected to produce a total of 51.84 million tons of corn this year, up from 40.42 million tons last year, according to the latest report by E.U. grains analyst Strategie Grains.