January 28, 2011

Morgan Stanley sees world grain price spike on tight markets

Tight world grain markets pose a more worrying scenario than the 2007-08 food crisis and prices will need to rise next season to ration demand, Morgan Stanley said Thursday (Jan 27).

"Our review leaves us more concerned than we have been in the five years of writing about this space," it said.

The bank lifted its forecast for corn in 2010-11 to US$6.50 a bushel and soy US$2.25/bushel to US$14/bushel, and said it expects prices to rise to US$7/bushel and US$15/bushel respectively in the following season in a bid to ration demand.

As higher prices stimulate an increase in plantings, it forecasts corn and bean prices will fall slightly in 2012-13, but only to US$6/bushel and US$13.50/bushel.

Wheat is also expected to be dragged higher in the battle for acreage, to US$7.50/bushel in 2010-11, rising to US$8.50/bushel the following year and US$8/bushel in 2012-13.

"Supply disruptions could lift prices materially above our forecasts as inventories in exporting countries are near the lows seen in 2007-08 and inflation concerns are mounting and likely to prompt policy moves," Morgan Stanley said.