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IGC’s 2011 wrap-up – Eurozone crisis has affected crops, barring rice

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The International Grains Council has released its grain market report for November 2011. As this will be the IGC’s last report for the year, grain traders in the major exporting countries and buying countries will use this as their end-2011 reference. Here are the main forecasts by the IGC for major crops:

Market commentary – After showing some strength in early November, global grain export prices were again in retreat, though with rice once more the exception. Overall, IGC’s GOI index fell by 16 points, or 6%, to a 13-month low. The recent market downturn can be partly ascribed to bearishly perceived market fundamentals, as harvests neared completion in the northern hemisphere and work started south of the equator. But it was also in reaction to deepening financial uncertainties, notably in Europe, affecting nearly all commodities. Heavy supplies of wheat amid strong export competition, including from new crop grain out of Argentina and Australia, mostly reduced fob values by between $20 and $30 over the past month, narrowing the gap with Black Sea quotations.

Despite initial support from US cash markets and a smaller official crop estimate, CME maize futures in Chicago saw major speculative selling, partly due to increased competition from other exporters but with sentiment considerably dented by worries about the global financial crisis and the collapse of a major brokerage firm. Similar pressures were evident in oilseed markets, led by a decline in US soyabeans, values of which dipped to their lowest since October 2010. As measured by IGC’s sub-index for rice, export prices of this cereal remained firm in the past month: within this measure, quotations in Thailand saw further gains, attributed to the country’s severe floods, while those in Vietnam and South Asia weakened.

Grains – Reduced grain crop estimates for some major producers, including for maize in the US, are only partly offset by increases in the CIS and elsewhere, trimming the global production total for 2011-12 by 3m. tons from October, to 1,816m. This would still represent an increase of 64m. tons over last year, largely due to sizeable recoveries in output in Russia, Ukraine and Kazakhstan. Production of all crops except sorghum will rise this year, with the biggest increases in wheat and maize. Southern hemisphere prospects remain favourable, with rains in South America and Australia mostly boosting yield expectations for wheat and helpful for plantings of maize and sorghum. Consumption of grains will also increase in 2011-12, especially in the feed sector, including a marked rebound in Russia after the previous year’s drought.

At 1,826m. tons, world use is expected to show a rise of 2.2% from the previous year. However, a feature this year will be the marked slowdown in the expansion of industrial use, set to rise by only 1.7%, to 303m. tons. Within this figure, the use of grains in fuel ethanol, which has displayed huge growth in the past decade, is expected to stay close to last year’s 147m. tons, assuming the use of maize for this purpose in the US declines slightly. With the reduction in the global grain crop estimate largely balanced by an upward adjustment in the opening stocks figure and a slight cut in the use forecast, the projection of world carryover stocks is unchanged from last month, at 360m. tons.

[ Data – here are the IGC’s data files (all Excel): Total grains supply and demand ; Total grains trade ; Rice supply and demand ; Rice trade ; Soyabean trade ; IGC’s grains and oilseeds index ]

However, the total for the eight major exporters is trimmed by 3m. tons, largely because of a reduced stocks projection in the EU. World trade in grains in 2011-12 (July-June) is expected to climb by 11m. tons to a record 254m., 4m. more than forecast previously, reflecting larger than anticipated wheat purchases after this season’s marked upturn in medium and lower grade supplies, especially from the Black Sea region, whose total grain shipments are set to total 55m. tons, up from only 22m. last year.

Wheat – The second largest world wheat crop ever and ample carry-in stocks from last year, have sharply boosted global availabilities in 2011-12. While use is rising at a faster than normal pace, world stocks at the end of the season are still expected to climb to their highest level in a decade. Compared with last month, the estimate of world production is 1m. tons lower, at 683m., including a slight downward revision in the US, where the spring wheat crop was even smaller than expected.

Stronger than previously projected feed use adds another 2m. tons to the global consumption forecast, at 679m., boosting the annual percentage increase to about three times the longer-term trend. Because of the increased demand figure, the forecast of global carryover stocks is 2m. tons lower than last month, at 200m., but these would still be the largest since 2001-02. The world trade forecast is lifted by 3m. tons from before to nearly 135m., only slightly below the 2008-09 record. Rather than reflecting a supply shortfall in any one country or region (as it did in 2008-09, when Iran’s imports were higher than usual), import demand appears strong in a wide range of countries, aided by competitive pricing in the major exporters, especially for lower and medium grades.

Maize (corn) – While the US crop was slightly smaller than last year’s, larger outturns elsewhere are expected to lift world maize production to a new record of 853m. tons (826m.). With harvests in North America and Europe entering their final stages, attention is switching to the southern hemisphere, where farmers in Argentina, Brazil and South Africa are set to plant more maize than in 2010-11. Due to strong competition from feed-grade wheat and projected sluggish growth in industrial demand, world use is forecast to increase at a slower than average pace. However, with the total still expected to exceed output, 2011-12 ending stocks are forecast to fall to a five-year low. Trade in the year to June 2012 is forecast to increase by 1% due to strong demand from buyers in parts of Latin America, Asia and North Africa.

Rice – Flooding in parts of Asia has negatively affected crop prospects in some key exporters. Nevertheless, bigger outturns in China and India are expected to lift global production by 2% in 2011-12, to a record 459m. tons. Total rice use is also forecast to expand by 2%, with a further small increase projected in the global carryover, to 100m. tons (98m.). Within the total, inventories in the five major exporters are forecast to increase by 8%, to an all-time peak of 32m. tons. World trade in calendar 2012 is forecast to contract by 0.8m.tons, to 32.5m., on reduced imports by Far East Asia, especially by Bangladesh and Indonesia.

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