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Black Sea questions, South Asian rice, the ethanol effect – IGC on grains in 2012 February

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IGC's supply and demand graphs for; top row - total grains, wheat, maize; bottom row - rice, soyabean, and IGC freight index

The International Grains Council (IGC) has released its grains market report for February 2012. In its market commentary, which is a cogent 250-word summation of 1,840 million tons of produce and where it will go, the IGC has said:

Grain and oilseed markets mostly strengthened in the past month, the IGC daily index (GOI) up 6% to near four-month highs. The upturn reflected concerns in early February about maize and soyabean crops in South America, as well as the impact of the recent severe cold spell in parts of Europe and the CIS.  Moreover, after a very high rate of shipments from the Black Sea region in the first half of the season, sales activity declined, with US grain, in particular, attracting much more buying interest.

Wheat export prices in Europe climbed by some 8%, in somewhat tighter markets, with reports of logistical problems and possible future export restrictions in the Black Sea region (though denied), seen as potentially bullish. However, global supplies appear ample, with the likelihood that a portion of upcoming large South Asian wheat harvests will be offered for export. US maize (corn) values remained firm, supported by reports of crop losses in South America and active export interest for remaining old crop supplies, although forecasts of a further rise in US plantings this spring added a bearish element.

Oilseed prices rallied strongly in the past month, reflecting worries about the final outcome of soyabean crops in Argentina and Brazil, good demand for US supplies, including a new trade deal with China, and rising crude oil values. International rice market trends were more mixed, with Thai prices supported by domestic support measures but those in Vietnam, especially broken grades, easing to compete with South Asian offers.

[The IGC 2012 February grains market report is here. The data files as excel spreadsheets are available in this zip archive.]

The IGC’s sectoral advice is:

Grains: The world production estimate is lifted by 11m. tons, to 1,841m., largely because of upward revisions in Australia, Kazakhstan, Ukraine, India and Brazil, the latter because losses of its main maize crop will likely be more than compensated by a larger second crop. These upward revisions outweigh a reduced maize figure for Argentina. To an extent, the forecast of world consumption is adjusted higher to reflect the bigger crop estimates, with total use of grains placed 5m. tons above the January forecast, at 1,836m. The change is mainly for feed use, now put at 775m. tons, 4m. more than before and 4% higher than in 2010-11.

Of particular interest is the marked slowdown in the annual increase in industrial use, expected to rise by only 2% this year, with ethanol use of maize in the US set to recede slightly from its peak in 2011. While the latest statistical forecasts of supply and demand suggest that, nominally, global carryover stocks will rise slightly in 2011-12 from last year’s low figure, to 378m. tons (373m.), the total carryover in the eight major grain* exporters is still expected to dip by 6m. tons, to 131m., the smallest figure since 2007-08.

As this pair of charts shows, the Baltic Dry Freight Index has dropped not only to a one-year low, but is at a three-year low. Charts: Bloomberg

Wheat: A further increase in the global wheat production estimate for 2011-12, to 695m. tons (653m.), boosts total availabilities to 892m., their highest ever. Projected food and industrial consumption are both revised lower this month, but attractive prices, particularly compared with maize, lift the forecast of feed use by 2m. tons, to 131m. (115m.), the most since the early 1990s. Strong feed wheat demand is reflected in the global trade figure, helping to lift total wheat trade to match the 2008-09 peak, at 136.8m. tons (125.7m.). Even though total consumption is growing at a faster than average pace, world stocks are projected to rise to 211m. tons (196m.), eclipsing the previous record in 1999-00.

Maize (Corn): Maize production in 2011-12 is expected to increase by 4%, to a record 864m. tons. The US crop, while disappointing, was slightly above average, and bumper harvests were collected in China, Ukraine and the EU. A severe drought has reduced yield prospects in South America, especially in Argentina, but Brazil remains on track to produce a record crop. Improved supplies in some countries are boosting consumption, with overall use forecast at a record high. Feed use of maize is expected to increase at a faster than average pace but, with US ethanol production likely to decline slightly, the rise in industrial demand will be below trend. With demand outpacing the increase in supplies, ending stocks are forecast to tighten further, including in the US. Amid solid buying by a number of importers, world trade is forecast to rise to a four-year high.

Barley: Better than expected 2011-12 harvest results, including in Argentina and Australia, lift the estimate of world barley production by 1.1m. tons compared with last month, to 134.7m. World consumption is expected to remain steady, contained by uncompetitive prices in the feed sector, especially in the EU, and by sluggish growth in brewing demand. While higher than previously forecast, carryover stocks are set to remain tight, particularly in the EU and North America. The projection of world trade is raised by 1.2m. tons, to a three-year high of 17.8m., with a steep upturn in buying by Saudi Arabia.

Rice: Due to increases in Asia’s biggest producers, China and India, global rice output is projected to rise by 3% in 2011-12, to 463m. tons. The record outturn will be accompanied by a further expansion in demand, to 460m. tons (449m.), but the 2011-12 carryover is still expected to increase by 4%, to 99m. Much of the forecast rise in global stocks will be due to increases in the major exporters, notably in India and Thailand, seen 14% higher, at a record 32.7m. tons. World trade in 2012 is forecast to contract by 7%, to 32.2m. tons, owing to significantly reduced purchases by key Asian buyers, including Bangladesh and Indonesia.

Ocean freight rates between major export-import regions.

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