September 26, 2011

  

World grain prices affected by global economy

A pessimistic global economic stance, together with abundant wheat output in most of the major producing areas has caused grain prices to come under renewed pressure.

 

London November feed wheat futures dipped below GBP160/tonne (US$247) this week for the first time since early August. Spot feed wheat was worth between GBP150 (US$232) and GBP154/tonne (US$238) depending on region.

 

Feed barley values, in a range from GBP145-152 (US$224-235) per tonne ex-farm, were still close behind the feed wheat market and milling premiums have also come under further pressure, with full-spec breadmaking premiums at about GBP17.50/tonne (US$27.10) in the week to Wednesday (Sep 21).

 

Prices had generally eased off on the back of a good world wheat crop, said Frontier Agriculture trading director Jon Duffy, but there were also many major outside influences on the market apart from supply and demand.

 

Better corn and soy crop prospects in the US have caused funds to sell off soft commodities over the past week. Australia is producing a bumper wheat crop and the possibility of a big surplus to export requirements in Russia has led to speculation about the introduction of state intervention buying.

 

Kazahkstan has also raised its grain output forecast in the past few days, while Ukraine looks likely to meet an export target of 24 million tonnes, despite the imposition of export duties, said HGCA. Although Ukraine has yet to finish combining, there are already concerns about dry seed-beds for 2012 cereal and oilseed rape crops.

 

Sterling fell sharply against the euro last week, having started on a six-month high, making our wheat increasingly competitive with the French crop on the export market, principally to other EU destinations.

 

However, with a good proportion of oilseed rape, malting barley and beans having been sold, cashflow pressures had eased and so many growers were not in the market, said one national trader. Their priority now was to get wet crops into good shape for storage, alongside drilling and cultivations for 2012.

 

Although millers had relatively good cover, compounders were stocked for only four to six weeks, but with a big wheat crop in store on farm had no incentive to do more at this stage, he said. This means there is relatively little difference in ex-farm prices through to November.

 

Despite the current pressure on cereal prices, the background of low corn stocks, volatile weather and uncertain demand from China and for biofuels have led the International Monetary Fund to warn of further food price spikes in the next 12-18 months.