Grains outlook for 2016 reflects a diminishing bear market than what was seen at the start of this year, said David Hightower, the president of the Hightower Report.
Speaking at the Global Grain Geneva 2015, Hightower identified adverse weathers in the US and Europe as well as El-Niño in the year ahead in Asia and Australia, that would challenge grain productions. "Combined, these events suggest that major lows have already been forged in grains," he explained.
Market actors should also anticipate impacts from growing ethanol demand worldwide, a "surprisingly" strong recovery in global feed demand, lower crop inputs due to affected profitability, and a higher index fund interest in grains on any return to the 2015 summer lows.
According to Hightower, it was expected that feedstock demand for ethanol was set to peak in 2014, away from restrictions in the US. This factor contributed to the decline of corn prices from their peak in 2012. Furthermore, ethanol production could be driven by massive productions of automobiles in 2015, which would eventually lead to increased demand for fuel.
On the demand of feed grain, Hightower said that this could be affected by a possible return of bird flu in the final quarter of 2015. "It is clear that the USDA has consistently understated feed demand," he pointed. "The USDA's global feed demand estimates for the 2014/15 season were steadily adjusted higher from July 2014 to July 2015, ultimately increasing by a whopping 16 million tonnes."
Hightower also advised traders to be aware of the rising significance of India and China concerning world supply and demand equation in the wake of the last major El Niño in 1997-1998. "With India and China making significant attempts to become less reliant on foreign food inputs over the last 16 years, even a small measure of weather adversity might end up having an outsized influence on food prices," Hightower cautioned.
Moreover, he is concerned that world grain traders had become lax in their sentiments towards global grain supply. However, unfavourable weather conditions and bigger-than-expected demand have "changed all that".
"A case can be made when you look at index fund activity, as these players appear to have developed a new-found respect for the grain markets," Hightower said. "Index fund buying for all actively traded non-financial markets exploded to a new, all-time record during the last week of June, and that was also their fourth biggest week ever for buying corn, soybeans and wheat."