Global grain price rise could be short-term

With the main northern hemisphere harvests complete, Nidera trading director Stuart Shiells looks at market prospects.

Short- to mid-term prospects for UK producers remain firmly tethered to global supply and sentiments.

Prices continued to be pressured during the summer with the expectation of a return to improved production prospects for northern hemisphere grain.

However, less favourable weather for southern hemisphere crops has given the market some recent support.

Grain production increase

The International Grains Council forecasts global grain production will increase by 139m tonnes to 1.93bn tonnes in 2013-14.

Global wheat production is predicted to increase by 38m tonnes and corn production will be 80m tonnes higher than last season.

The expectation and subsequent realisation of these rises are behind the £35/t drop in domestic grain prices since the start of the year.

US corn continues to be one of the largest pressure points on global grain prices, with the USDA’s September report forecasting a near 30% increase in production for 2013, up 80m tonnes on last year to more than 351m tonnes.

However, the US corn harvest was only 12% complete by the end of September and with yields looking better than expected, the full effect of the predicted bumper crop is yet to be fully realised.

Global wheat export demand

The largest gains in wheat production have come from a 10m tonne rise in Europe and a 31m tonne rise in the Black Sea countries, with demand from major importer Egypt largely being supplied by these at the start of the season.

US wheat has seen strong demand from South America, with the overall US wheat export pace being well above the rate needed to reach the USDA forecast season total of nearly 30m tonnes. This strong export demand could become a bigger story as we move through the season, with US ending stocks now forecast at the lowest for three years.

In addition, with wheat crops suffering in the southern hemisphere from cold, dry weather in Argentina and Brazil, export demand may be pushed more towards the USA, reducing its stocks even further.

Although the market has been rallying recently due to these supply concerns, the overall global situation means they are unlikely to have any prolonged effect.

For example, excellent yields mean the Canadian wheat crop is forecast at 33m tonnes – the largest since records began in 1908. Also, if the current higher-than-normal premium for US wheat over corn persists, wheat feeding will switch back to coarse grains.

Winter crops

With 2013-14 grain supply and demand better understood, global trade is starting to pick up some market direction from the progress of winter crop planting.

US winter wheat sowing is progressing at a normal pace (39% planted by the end of September), but Black Sea winter crops are delayed. Cold, wet weather in Russia and Ukraine is disrupting both late-season harvesting and drilling.

By the end of September, Russian winter crop planting had reached just under 50% of the intended area with 7.8m hectares sown. A year earlier more than 12m hectares had been sown by the same date.

While these issues are unlikely to lead to a prolonged rally, they could temporarily offset the overall effect of the larger global crop as we move through autumn into winter.

Effect on the uk

Although the UK wheat crop is smaller than the historical norm, it is much better than anticipated, with yields close to average and of improved quality.

Extra ethanol demand is having some effect to widen the spread of prices domestically, but with carry-in stocks among some of the largest for the past two decades and strong early-season imports, the UK will have an exportable surplus of wheat to deal with. At current price levels, only small volumes of quality wheats are being exported.

It is difficult to see any sustained upward movement in UK prices without a major global crop problem in the short to medium term.

For more on this topic

See the Nidera Global Grain Insight map