The IGC raises two bright red flags about world grain
The Grain Market Report for 2012 October released a few days ago by the International Grains Council (IGC) makes two extremely important prognoses.
These two forecasts will have an immediate effect on grains prices as they are traded in the agricultural commodities markets through the winter season of 2012-13, and I expect we will see the effects in the major indices that describe the movements of food and of food prices – the FAO food price index, the World Bank ‘pink sheet’, the IMF commodity prices index, Unctad’s long-running series on agricultural commodities, and of course the various exchanges-based indices (DJ, CBOT, NYSE LIFFE and so on).
The IGC has cut a further 6 million tons (mt) from the 2012-13 forecast for total global grains production, which is now expected to be 5% lower year on year, at 1,761 mt. The decline includes 39 mt of wheat, 46 mt of maize, and 4 mt of barley. “Reduced availabilities and higher prices are expected to ration demand, resulting in the first year on year fall in grains consumption since 1998-99,” said the IGC in this month’s report.
It is worth making the connection that the United States Department of Agriculture (USDA) in its recent ‘Wheat Outlook’, released on 2012 October 15 by the Economic Research Service, had said that global wheat production in 2012-13 is projected to reach 653.0 million tons, down 5.7 million tons this month (that is, 2012 October). The USDA’s 2012 October Wheat Outlook had said the “largest change this month is a 3.0-million-ton cut in projected wheat production in Australia to 23.0 million” and had added that “projected wheat production in Russia continues its decline as the wheat harvest gets closer to its end and projections for abandoned wheat area get higher, reaching 12% of planted area”. About the European Union (EU-27) wheat production for 2012-13 the USDA Wheat Outlook had reduced it 0.8 million tons to 131.6 mt, mostly because of a significant reduction for the United Kingdom (UK) (down 0.8 million tons to 14.0 million).
The IGC forecasts show a further tightening in the balance this month, with 2012-13 end-season total grains stocks revised down by 4 mt to 328 mt (it was 372 mt the previous year), the lowest since 2007-08 – and we all remember well the global food price increases that set in during the 2007-08 season, and how the spikes of that period were quickly replaced from mid-2010 onwards by the sustained high plateau of food prices.
“Inventories for the major exporters will be even tighter and the smallest for 17 years,” the IGC has said in its 2012 October Report. The global year on year decline is forecast to come from a 24 mt reduction in wheat, an 18 mt decline in maize, and a 1 mt drop in other coarse grains, notably barley. Global grains trade is expected to fall by 19 mt from last year’s high, to 249 mt, with a particularly steep decline for wheat – down by 13 mt year on year, largely due to a forecast reduction in EU feed wheat imports against the backdrop of tight Black Sea supplies. (Also please see the European Commission’s directorate general of agriculture’s ‘Commodity Price Data’ 2012 August edition.)