November 15, 2011


Record grains crop to pull down prices into early 2012



Amid record grain harvest of most producers, the grains prices worldwide are expected to face more downward pressure in the approaching months, giving buyers enough sources to choose from.


The strong recovery in production has been a response to prices that hit 30-month highs around February, encouraging farmers to increase acreage.


"Grains production has turned out to be much better than we thought earlier this season. Farmers wouldn't have produced the large volumes if prices weren't attractive," said Abdolreza Abbassian, secretary of the Intergovernmental Group for Grains under the United Nations' Food and Agriculture Organization.


FAO's Food Price Index hit an 11-month low in October with the organisation now estimating 2011 global cereals output at a record 2.325 billion tonnes.


Abbassian said Russia, China, Ukraine and South America have produced more grains in response to higher prices.


Global wheat prices will remain depressed due to the large crops in Australia and the Black Sea region and prices are likely to move in the US$6/bushel-$6.50/bushel range, said Karl Setzer an Iowa-based analyst with MaxYield Cooperative.


Near-month wheat futures on the CBOT is now trading around US$6.21/bushel, 30% below its 2011 peak of US$8.9325/bushel, reached in February. Plentiful supply has pushed CBOT wheat below corn, the first time in 16 years.


Many traditional buyers of US corn are buying feed grade wheat from Australia and the Black Sea region, said Setzer.


Due to high prices, Ukraine is growing corn like never before, not only switching from other crops but also bringing in additional land, Abbassian said.


The International Grains Council expects Ukraine's corn production in the crop year started July 1 to rise 57% to 18 million tonnes. Abbassian said it may even touch 20 million tonnes.


"Farmers have responded to high prices and they will do the same next year, so we could be looking at a more bearish picture in the second half of 2012 when the next crop arrives," Senior Agriculture Economist at Kansas State University, Jay O' Neil, said.


It is an excellent situation to stay in business because even though grains prices have declined from their peaks, they are still remunerative and higher than last year, said Abbassian.


Near-month CBOT corn futures have fallen 20% from their June peak, to US$6.40/bu, but analyst expect prices to further ease to US$6/bu before finding support.


Soy futures at US$11.80/bushel are 19% below their 2011 peak and could fall to around US$11/bushel before finding support, the said.


The impact of a record Brazilian soy crop is continuing to be felt in the international market, said Victor Thianpiriya, a Melbourne-based agricultural analyst with ANZ Banking Group.

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