December 3, 2008


Tight global grain market a boost for producers

Demand from the animal feed market is expected to grow from 89 million tonnes to nearly 120 million tonnes, which would tighten world supplies but boost profits for producers.


Total wheat output this year will be nearly 683 million tonnes, up 73 million tonnes from last year, according to data from the International Grains Council (IGC).


However, demand is expected to increase from 614 million tonnes last year to at least 650 million tonnes this year, said the IGC.


Many countries' beef and pork production are the main consumers of feed grain. Poultry relies largely on grain-based diet, and the rising demand is now being reflected on the international markets.


Wheat on the Chicago market has moved up by US$14.52 to US$230.64 for November 2009, with similar trends observed in Kansas and Minneapolis. However, both the London and European markets have remained static, with wheat for 12 months' time still rated at barely GBP 108 (US$159.5) per tonne.


UK's Home Grown Cereals Authority (HGCA) estimates global wheat planting will fall 2 percent. If the GBP remains 25 percent higher against the US dollar compared with earlier this year, then UK farmers may see farm prices increase significantly.


It is unknown how much crop plantings the growers will reduce in the early months of 2009.


The price of crude oil, a major factor in prices of most fertilisers, has dropped recently, but it will take some time for the farmers to reap the benefits.


The outlook on this front remains unclear, said fertiliser trader Calum Findlay.


Findlay said most manufacturers are locked into higher gas and oil prices until year-end, while imports into the UK have nearly stopped and the appreciating of the US dollar against the GBP are keeping UK values firm.


The current outlook is that the market will remain weak in the short term as global demand is insufficient to underpin a price rally, but in January, strong North American enquiries are likely to boost prices, according to Findlay.

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