March 25, 2014

Global grain supplies stabilising US prices: Rabbobank




World grain supplies are rebuilding and stabilising US grain prices, though not without challenges resulting from South American production and Chinese demand, according to Rabobank analysts.

Grain markets are rebuilding and prices have moderated over the last six months and could go lower, said Bill Cordingley, managing director and chief of Rabobank's agribusiness research and advisory group.

US planting intentions and weather will affect US grain prices in the next few months. However, Cordingley believes it is too early to tell how production will play out while most of the volatility in markets is coming from outside the US.

"All eyes are on South America and the Black Sea (region) as well as the US winter wheat crop," he said.

According to Cordingley, South America's record soybean crop is challenged by rainy weather at harvest, its transportation infrastructure and logistics in deliveries to export markets, and the likelihood of drought in Brazil, decreasing expectations on its second corn crop.

Unknowns are also entering grain markets with the conflict between Ukraine and Russia, rallying contract corn prices to their highest in eight months on March 4. The Black Sea region represents about 20% of global wheat exports, 40% of barley exports and 18% of corn exports. Any volatility in that region may have an immediate effect on markets.

While world demand for agricultural commodities remains strong, due to China's huge demand, there is some concern that China's grain demand will moderate this year. However, China also seeks to build its strategic reserves, relaxing its 95% self-sufficiency policy for feed corn.

"China is very much a wild card," Cordingley said.

In the medium term, corn (which drives the grain complex in the US) is still on a bearish note.
However, with favourable weather, there could still be a large crop in South America and a good crop in the US, while stocks are rebuilding, Cordingley added.