November 25, 2011
IGC: Cheaper prices encourage users to choose wheat as alternative
The International Grains Council (IGC) said that the falls in wheat export prices to their lowest in more than a year have encouraged use of the grain in place of corn instead.
The London-based council lifted by two million tonnes to 23 million tonnes, its forecast for the increase in world wheat consumption in 2011-12, noting the fall in prices of from exporters such as the Australia closer to offers from Black Sea producers, notably Russia and the Ukraine, the price leaders.
"Import demand appears strong in a wide range of countries, aided by competitive pricing in the major exporters, especially for lower and medium grades," the IGC said.
"Heavy supplies of wheat amid strong export competition, including from new crop grain out of Argentina and Australia, mostly reduced export market values by between US$20 and US$30 a tonne over the past month, narrowing the gap with Black Sea quotations."
Indeed the council raised by three million tonnes to 135 million tonnes its forecast for world wheat trade, just shy of the record set three years ago, citing "larger-than-anticipated purchases after this year's marked upturn in medium and lower grade supplies".
Germany had a second successive below-average crop, in quality terms, thanks to harvests rains, which in Ukraine left the country with only 30% of wheat meeting milling specifications, according to consultancy Agritel.
The IGC cut by two million tonnes to 200 million tonnes its estimate for world wheat stocks at the close of the season, a reduction which goes against the recent flow of forecasts, from observers such as the USDA, which earlier in the month lifted its forecast for a fourth successive month.
However, the extra wheat use will come at the expense of corn, for which the IGC cut its estimate for consumption growth by two million tonnes to 17 million tonnes.
"Due to strong competition from feed-grade wheat world use is forecast to increase at a slower than average pace."
The council also highlighted "sluggish growth" in industrial demand for corn, used largely in making ethanol, starch and sweeteners, restating a forecast that the US use of the grain for making biofuels will decline "slightly".
In export markets, the fall in corn prices has lagged that of wheat, IGC data showed, as importers compete against resilient cash prices in the US, by far the biggest shipper of the grain.
On futures markets, the grains have moved in step, both losing nearly 10% of their value in Chicago over the last month.
Paris wheat has lost only 5%, protected by a falling euro, which improves the grain's affordability to buyers in other currencies.