The unprecedented behavior of coarse grains markets a few months ago, when maize prices approached $300 a tonne, inspired concern among users and producers alike. But even though prices by late September stood 18% lower than their June highs, at about $236 a tonne, unease continues to plague market participants.

The market began to retreat in July, and in August, maize prices dropped to less than $200 a tonne. While maize prices were declining, other grains prices were dropping, the dollar strengthened from its lows, and crude oil fell from its highs.

Many analysts attributed the declines to a market pull-out by large pools of investment funds, which had bought grains and other physical asset classes to seek protection against financial market turmoil and inflationary trends. Signs of an economic slowdown in the U.S. and other countries were expected to tamp down demand for physical commodities, discourage investors and keep maize and other commodity markets under pressure.

But the markets have been anything but calm, as limit or doubledigit prices moves one day often are followed by the same magnitude of price change in the opposite direction the next day. The volatility creates a difficult environment for making marketing decisions for suppliers and users of grains.

The volatility also illustrates that grain supply/demand fundamentals are no longer the only factors heavily influencing prices. The biofuels market has linked maize and soybean prices to the price of crude oil, the fluctuating value of the dollar has influenced all commodities, and serious financial and credit problems have complicated the situation.

The linkage of these outside factors surfaced once again in September, when an onslaught of U.S. financial institution failures sent investors running back into the perceived safe haven of physical commodities. A subsequent $700 billion U.S. government plan to "fix" the credit and financial problems, and the consequences of that plan, probably will continue to affect commodity price movement for some time.

Despite the clear push and pull on grain prices from other forces, fundamentals have exerted some influence. An August U.S. Department of Agriculture (USDA) report on 2008-09 maize production projected a record world crop and the second-largest U.S. crop on record, which helped to pressure prices.

But the USDA’s next report shaved both world and U.S. production numbers for maize and other coarse grains. Global coarse grains production in 2008-09 was projected in September to reach 1.087 billion tonnes, down 2.4 million from the previous month, while global maize production was put at 782.96 million tonnes, down 6.62 million from August and down nearly 8 million from 2007-08.

The U.S. 2008-09 maize harvest was forecast at 306.65 million tonnes, down about 5.5 million from the previous month’s estimate and down 8% from the record 2007-08 crop. The reduction stemmed from a lower forecast yield, as dry conditions plagued much of the Corn Belt in August.

Another major maize reduction occurred in Argentina, where the USDA cut the projected crop to 19 million tonnes, down 14% from August and down from 20.5 million in 2007-08. As planting approaches, the Argentine government has been rejecting maize export registrations, the USDA noted, and high fertilizer costs will reduce use, making maize riskier than soybeans in respect to both yields and government marketing intervention.

Global maize use in 2008-09 was forecast at a record 796.47 million tonnes, up 3% from 2007-08, which would leave ending stocks at 109.9 million tonnes versus 123.5 million the previous season. If realized, the ending stocks-to-use ratio would stand at 13.9%, the lowest since 1973-74’s 11.8%. At those levels, the maize market will need to "buy" enough planted area in early 2009 to assure big harvests and adequate supplies for the in 2009-10 season.