Coarse grains

by World Grain Staff
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Global coarse grains production in 2009-10 is expected to slip only slightly from the record levels seen the previous season, according to a recent report by the U.S. Department of Agriculture (USDA). World coarse grains output in 2009-10 is forecast at 1.091 billion tonnes, the USDA said, just short of the record global harvest of 1.102 billion tonnes set in 2008-09.

World coarse grains consumption in 2009-10 is projected to increase by 2.6%, surpassing 1.1 billion tonnes for the first time. And even though stocks at the end of 2009-10 are forecast to shrink to about 177 million tonnes from 189 million in 2008-09, the projected level would represent about 16% of use, well above the tight 13.8% at the end of 2006-07.

Global production of maize, the largest crop in the coarse grains complex, should slip by only 0.3% from its 2008-09 record high, to about 790 million tonnes in 2009-10, the USDA said. Total maize use is forecast to rise to a record 801 million tonnes, a modest 3% year-on-year increase, leaving 2009-10 ending stocks at 132 million tonnes, or 16.5% of use.

For a time earlier in the season, prospects were promising that 2009-10 world maize production would set a record high at more than 792 million tonnes. That outlook derived from a potential U.S. harvest that might exceed the record 331 million tonnes produced in 2007-08.

But the 2009-10 U.S. maize crop was plagued nearly from the start by cool, wet weather that continued through to harvest time. The wet U.S. harvest and subsequent delays not only diminished crop potential in terms of tonnes, it also raised quality concerns, which prompted the USDA to caution about the level of U.S. maize exports for 2009-10.

The USDA put 2009-10 world maize exports at about 84 million tonnes, up about 5% from the previous season. U.S. exports are projected to advance by about 13%, to 53.3 million tonnes, but that estimate is down from the USDA’s forecast earlier in the season.

The USDA cited quality as one factor in cutting the U.S. export outlook, along with increased competition from Ukrainian maize, from feed-quality wheat from the Black Sea region and from increased maize shipments from Brazil and Argentina. Argentina’s maize crop should continue its recovery from the recent drought, while Brazil and Ukraine will maintain production near last season’s high levels.

Another factor that could curtail U.S. maize exports is increases in U.S. maize prices, "partly influenced by funds investing in commodities," the USDA said. In light of this development, the USDA in its latest report raised its forecast for average maize prices received by U.S. farmers by nearly $8 a tonne.

Yes indeed, the influence of investment funds is back in the grain markets. But unlike in 2007-08, when supply tightness and physical demand attracted funds to commodities, grain price moves in recent months have been linked to the so-called "dollar carry trade."

Rising U.S. deficits and debt issuance along with near-zero U.S. interest rates to aid the banking sector have pressured the dollar versus other currencies and have encouraged the carry trade. It consists of traders, seeking higher returns, borrowing against the low-yielding dollar to reinvest in other assets.

The result is that prices of grains, metals, oil, stocks and other assets, virtually on a day-to-day basis, move opposite the dollar, with the dollar dictating the direction. One analyst said fundamentals had been pushed aside and attributed rising grain prices to the carry trade, while another noted the dollar had become "the epicenter" for all asset markets.

How long this link continues remains uncertain, with economists saying it will depend on monetary policies, fiscal policies and psychology across many markets.