Coarse grains

by Chris Lyddon
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The world’s coarse grains market has remained volatile in recent weeks with a focus on maize (corn) and, in particular, the apparently shrinking U.S. crop.

“The steep upturn in maize prices was almost entirely in response to declining yield forecasts for the U.S. crop, with a sharply reduced official projection of stocks, placed at a 14-year low, triggering a mid-month surge in futures,” the International Grains Council (IGC) said in its most recent Grain Market Report.

The last two months have been dominated by concern over tight supplies, but most recently there’s been a reminder that there are other factors to watch. Expectations that China, concerned over food price inflation, would raise interest rates and tighten monetary policy to slow demand, triggered a sharp sell-off on the fear that it could mean an economic slowdown and, therefore, reduced demand for commodities.

In its October report, the IGC cut its estimate for world maize production in 2010-11 to 814 million tonnes from the estimate of 824 million it produced a month earlier. Global maize production in 2009-10 was 811 million tonnes. At the same time, the IGC’s been revising world maize consumption higher, up to 840 million tonnes for 2010-11 from 837 million last month. Last year, world maize consumption was 813 million tonnes.

The IGC says the cut in its estimate is down due to “rapidly worsening production prospects in the U.S. and China.”
There are indications on the bearish side. “Ideal planting conditions could result in a bumper crop in Argentina,” it says and points out that the production figure of 814 million tonnes is still a record.

The IGC’s explanation for the increase in consumption is that “despite the recent spike in prices, maize remains competitive for livestock use.” Feed demand is forecast to rise by 20 million tonnes to 490 million.

Because of that consumption, 2010-11 ending stocks are projected to fall to a four-year low of 125 million tonnes. The IGC noted, in particular, a sharp drop in the U.S. carryover forecast to the lowest level since 2003-04, at 24.1 million tonnes, down from its earlier estimate of 28.1 million and well below the previous year’s level of 43.4 million tonnes.

The U.S. Department of Agriculture (USDA) cut its estimate for U.S. maize production in 2010-11 to 318.52 million tonnes from the previous figure of 321.68 million. This was the main factor behind a cut in world maize output to 818.52 million tonnes from 819.65 million. In 2009-10, the world maize crop was, according to the USDA, 813.4 million tonnes, of which 333.01 million came from the U.S.

The USDA now has U.S. maize ending stocks at 21.01 million tonnes, the lowest level since 1995-96.
The changes for maize help bring total coarse grains production to 1.085 billion tonnes, down from 1.088 billion estimated a month ago and well off the previous year’s 1.108 billion.

As well as reduced U.S. maize production, the lower figure also represents reduced barley production in China, and reduced oats and rye production in Russia, the USDA said. Global 2010-11 barley production is lowered 800,000 tonnes mostly on a 700,000-tonne reduction for China based on lower area and yields. Other barley changes include small reductions for Belarus and the E.U.-27, and a 300,000-tonne increase for Australia “as abundant rainfall in eastern growing areas support higher yields,” it said.

There is a 1.3-million-tonne reduction in oat production, mainly because of a 1-million-tonne decrease for Russia. There is also a 400,000-tonne reduction in Russian rye production.

In its commentary in the WASDE report, Rabobank highlighted the impending battle for acreage. “With soybeans, cotton and wheat also at extremely lofty levels, it also doesn’t provide maize with any certainty of buying the required acreage needed next season,” it said.

Chris Lyddon is World Grain’s European editor. He may be contacted at: