FAO Monthly News Report on Grains, MNR Issue 70 – February 2011
Record US corn harvest forecast
28 February 2011 (Bloomberg)
WASHINGTON– Corn supplies will remain tight in the United States, the world’s largest grower and exporter, even after an increase in planting boosts production to a record, the Department of Agriculture’s chief economist said.
Farmers will harvest a record 13.73 billion bushels of corn, up from 12.447 billion last year, with 5 billion bushels devoted to ethanol, compared with 4.95 billion for the 2010 crop, Joe Glauber predicted last week at a USDA forum near Washington. Increased demand will limit the gain in inventories, with supplies on Aug. 31, 2012, rising to 865 million bushels from 675 million expected at the end of the current crop year, Glauber said.
“Despite an increase in acres, the corn market is going to remain tight,” Glauber forecast. “It points to the fierce competition for acreage this spring.” Tighter supplies helped boost global food costs by 25 percent last year, reaching the highest ever last month, according to the United Nations. Rising demand also is helping to boost net-farm income in the US by 20 percent this year to a record $94.7 billion, the USDA said earlier this month. US farm exports will jump 25 percent to a record $135.5 billion in fiscal 2011, Glauber said.
US soybean output will rise to 3.345 billion bushels this year from 3.329 billion in 2010, with end-of-year inventories at 160 million bushels, an increase of 20 million bushels, according to the USDA. The US is the world’s largest grower and exporter of the oilseed. Wheat production will be 2.08 billion bushels, down from 2.208 billion in 2010 because of lower yields, Glauber said. US wheat exports are forecast at 1.15 billion bushels, down almost 12 percent. Stockpiles before the next harvest are forecast to fall to 663 million bushels on higher food and feed use. Overseas purchases of agricultural products from the US, the largest exporter of wheat and cotton, probably will jump $26.8 billion in fiscal 2011 from theyear that ended on Sept. 30, Glauber said. China is forecast to be the top market for US agricultural exports at $20 billion, surpassing Canada’s $18.5 billion, he said. Imports will be a record $88 billion.
Sell-off in grains and oilseeds ‘an over-reaction’
25 February 2011 (Agrimoney.com)
The sell-off of in grain and oilseed markets in response to the Libyan crisis is an over-reaction, with tight supplies, particularly of corn, warranting continued high prices. The Canadian Wheat Board said that the Libyan unrest “in reality, does not materially change the grain fundamentals facing the market”, even through the global economic fears it has provoked through lifting oil prices. “There are macro-economic impacts that may arise from the political uncertainty, but these factors are not anticipated to have a measurable impact on wheat demand or trade,” the board, the world’s biggest marketer of wheat and barley, said. For durum wheat, the variety used in making pasta, “the turmoil across NorthAfrica and the Middle East has had neither a positive or negative effect on demand”.
Rabobank analysts said the sell-off of up to 14% in grain prices in seven sessions had driven them to “unsustainable levels”, provoking demand at a time when, with supplies thin, high prices were needed to limit consumption. “The underlying fundamentals in grains and oilseeds remain bullish,” the bank said, retaining an upbeat view on prices over the medium term. “Grains and oilseed prices are likely to find support from consumers who have shown an increase in buying activity amidst this pullback in prices. Higher prices are needed to further ration demand.” The bank attributed the correction largely to a sell-off by speculators trimming risk exposures, or switching to oil, whose prices have been sent byfears of further Middle East unrest to two-year highs above $100 a barrel.
Both the CWB and Rabobank were particularly bullish over corn prices, which the board saw as taking over “market leadership” from wheat. “Corn futures should stay strong to ensure acres and will thrive with any adverse weather during the planting window,” the board said, terming the dynamics of the broader coarse grain complex, including barley, oats and sorghum too, as the “the single most bullish aspect” in farm commodity markets. “The massive world protein push coupled with key production disruptions and of course the continued use of grain as fuel has placed enormous pressure on the global coarse grain supply-and-demand balance.” Without a “massive” US corn harvest, and decentproduction in the Black Sea producers, coarse grain stocks could challenge the 20-year low set in 2007-08 – a major driver behind the last spike in farm commodity prices.
The CWB added that wheat prices were, nonetheless, set for a gentle decline as global production recovers this year. Even the “perilous condition” of America’s hard red winter wheat crop looked surmountable, given the relatively strong levels of stocks, of 309m bushels, which the US was set to hold at the close of 2010-11. “The stocks situation may potentially play a role in cooling wheat markets as the US marketing year winds down between now and the end of May,” the CWB said. But spillover strength from corn meant that richer inventories did “not necessarily mean that wheat futures will decline precipitously from the recent heights”.
Hedge Funds Cut Food-Price Bets as Grains Take a Fall
25 February 2011 (Bloomberg)
Hedge funds are leading an exodus from agricultural markets, slashing bullish bets in the US from almost the highest levels on record after grain prices slumped, money managers said. The 8.6 percent plunge in wheat since Feb. 18 and a decline in corn and soybeans means speculators probably kept cutting positions this week, said Nic Johnson, who helps manage about $30 billion in commodities at Pacific Investment Management Co. in Newport Beach, California. Speculators reduced bets on rising wheat prices by 23 percent in the week ended Feb. 15, Commodity Futures Trading Commission data show. Bullish bets on soybeans fell 18 percent and those for corn slid 3.4 percent. Holdings in eight agriculture commodities by money managers arehigher than during the global food crisis three years ago. Floods from Canada to Australia and drought from China to Russia ruined crops and drove food prices tracked by the United Nations to a record in January. That helped spark protests across North Africa and the Middle East, toppling leaders in Tunisia and Egypt. Agricultural “products had a great run, but now the opportunity appears to be in oil and gold,” said Walter “Bucky” Hellwig, who oversees $17 billion at BB T Wealth Management in Birmingham, Alabama. “If I am the hedge fund manager, I’m getting killed on the long grain positions.” The Standard Poor’s GSCI Agriculture Index of eight futures declined 6.8 percent sinceFeb. 17, a four-day slump that was the longest since October. CFTC data covering the week ended Feb. 22 is scheduled to be released at 3:30 p.m. today in Washington. The managed money category includes hedge funds, commodity pools and trading advisers.
“The amount of speculative positions is off the charts,” Johnson said. “What you’ve seen in the last few days is liquidation of that length.” Wheat futures reached a 29-month high of $9.1675 a bushel on the Chicago Board of Trade on Feb. 14, and since then the prices has plunged 15 percent. Corn has dropped 6.4 percent from a 31-month high of $7.4425 a bushel reached Feb. 22, and soybeans slid 8.7 percent since touching a 30-month high of $14.5575 a bushel on Feb. 9. “Some funds definitely had a harrowing moment,” Peter Sorrentino, who helps manage $13.8 billion at Huntington Asset Advisors, said by telephone from Cincinnati. “There were some nerves on edge.” Crude oil traded onthe New York Mercantile Exchange jumped to $100 a barrel on Feb. 23 for the first time in two years as clashes in Libya threatened to disrupt supplies from Africa’s third-biggest producer. Through yesterday, gold rose for eight consecutive trading sessions in New York.
Investors put a record $2.6 billion into agriculture-index swaps, exchange-traded products and medium-term notes last month, after pouring $5.7 billion during the fourth quarter of 2010, according to Barclays Capital. In the week ended Feb. 8, hedge funds and other speculators increased bullish bets on wheat to a combined 51,787 futures and options contracts, the highest since August 2007, CFTC data show. The net-long position in soybeans reached an all-time high of 179,753 contracts in the seven days ended Nov. 9, and corn reached a record of 429,189 the week ended Sept. 28. An index of net holdings in wheat, corn, soybeans, coffee, sugar, lean hogs, live cattle and cocoa reached a record 972,958 the week ended Sept. 28. Demand fornew shares of 19 exchange-traded products tracking agricultural commodities rose 33 percent this year, according to data compiled by Bloomberg. Shares outstanding in Deutsche Bank AG’s $3.5 billion PowerShares DB Agriculture exchange-traded fund expanded 24 percent, data compiled by Bloomberg show. The number of shares in the fund fell 4.9 percent since reaching a record on Feb. 17.
“The trend itself is based on fundamentals, but price moves are magnified on the upside and downside by demand from speculators,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees $340 billion. “There are a whole host of portfolios out there, and for a small fraction of them to be convinced to own some commodities, that is a huge new demand.” Barclays Plc’s iPath Dow Jones-UBS ETNs also attracted money. Shares outstanding in its $347 million grains ETN rose 83 percent since the start of the year, the $295 million agriculture index ETN more than doubled, and units in the $117 million livestock ETN increased 75 percent, according to datacompiled by Bloomberg.
“There’s real scarcity there,” said Peter Timmer, a professor emeritus at Harvard University and an expert in food policy. “We need to deal with that. But we don’t need to exacerbate the scarcity with all this hot money.” The Dodd-Frank Act, enacted in July and named for its primary sponsors, former Senator Christopher Dodd and Congressman Barney Frank, expanded the CFTC’s authority to the over-the-counter market. The agency is drafting new market rules that may to go into effect later this year, including caps on the number speculative positions one firm can hold.
“The real driving force behind what’s going on is global economic growth and reductions in crop size,” Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter, said in a telephone interview Feb. 16. “Political figures who are trying to blame rising prices upon speculation are ill-advised.” French President Nicolas Sarkozy accused commodity speculators of “extortion” and “pillaging” in an address to the African Union on Jan. 30. He pledged to take action against traders during his leadership of the Group of 20 policy makers this year. “Without a doubt, these higher prices will encourage a more robust regulatory effort,” said GaryBlumenthal, the president of World Perspectives Inc., an agricultural consultant in Washington. “It’s very hard for politicians to ignore public angst even when that angst is founded on imperfect information.”
Russia could prolong grain export ban: deputy PM
22 February 2011 (Business Recorder)
MOSCOW: Russia on Tuesday said it may extend a ban on grain exports that has been blamed for triggering global food price rises beyond its provisional expiry date of July 1. The Russian government’s pointman on agriculture emerged from a closed-door cabinet meeting chaired by Prime Minister Vladimir Putin to announce that such an option had been discussed. First Deputy Prime Minister Vitkor Zubkov refused to disclose further details while stressing that no formal decision had yet been reached. “We discussed the option of extending the grain export ban after July 1,” news agencies quoted Zubkov as saying. Wheat futures in Chicago were down in early trading amid broader financial market jitters sparked byworries about the political turmoil in Libya. Putin’s initial decision to ban all exports following a record 2010 drought shocked the world’s commodity markets and helped drive up world food prices that had already been soaring on booming Asian demand. The wheat export ban went into effect in mid-August and has been cited as one of the many factors behind the social unrest and revolutions that have recently swept much of the Arab world. The world’s third-largest wheat exporter’s clients include nations such as Egypt — the world’s biggest importer that buys half of its wheat abroad.
The Russian exports ban had been initially due to expire at the end of 2010. But the government decided to continue restricting exports until mid-2011 so that it could determine whether the new harvest was good enough to allow the resumption of shipments abroad. Last year’s devastating drought and accompanying fires wiped out harvests in 28 Russian regions and prompted a series of price hikes that have seen the cost of some staples such as potatoes multiply tenfold since December. The continuing food inflation has turned into a sensitive political issue ahead of this year’s parliamentary elections. Analysts link the spike in wheat prices to subsequent jumps in the cost of both Russian dairy products and beef. Putin’sgovernment decided to tackle that problem Tuesday by eliminating the open trade of feed grain. Zubkov said that Russia’s remaining three-million-tonne supply of feed grain would be distributed to the country’s regions on an “as needs” basis only.He added that market prices would for now remain in effect for regular grain supplies. Some industry insiders have suggested that the ban could possibly continue through next year. The head of Russia’s Agriculture and Industry Union said he was certain that exports would not resume on July 1.
“The grain situation remains fairly serious,” Ivan Obolentsev told Voice of Russia radio. “I think that this ban will quite obviously continue through the autumn and depending on the results of the harvest campaign, we will see whether it is worth extending it further or not,” Obolentsev said. Several analysts, however, have pointed to a recent reduction in some wheat-product prices that suggests that the market may be starting to peak out. A state-sponsored commodities survey cited by Interfax said some flour prices had slipped by 1.5 percent since the start of the month.
Republic of Korea: Gov’t to Build Warning System for Global Grain Prices by April
21 February 2011 (Maeil Business Newspaper)
To ward off rising risks stemming from the global surge in grain prices, the South Korean government will be injecting two billion won ($1.8 million) to build a warning system that sets off an alarm prior to a steep price hike. Hopefully, a better forewarning system will minimize the damages caused by global price instabilities on Korea’s national economy. The government disclosed on Sunday that the task force it had created last month – participated by the Ministry of Strategy and Finance (MOSF), Ministry of Food, Agriculture, Forestry, and Fisheries (MIFAFF), and other relevant departments – is sketching out a warning system as a countermeasure to shield the domestic economy from hikes in global grain prices.
According to a study by the Korea Rural Economic Institute (KREI), the lack of a proper monitoring organization that observes global price trends incurred a loss of 259.6 billion won in 2008, when grain prices skyrocketed. In view of this, the Korean government has decided to start compiling information on such price trends with the help of other specialized agencies such as KREI. A monitoring agent will be dispatched to main producer nations of wheat, corn, beans, and other core grain imports to offer real-time data on prices. An agent may also be sent to Chicago’s futures market, the central hub of the international agricultural produce market.
Korea will also start a joint project with renowned research institutions and the US Department of Agriculture (USDA) to come up with a variability model for global grain prices. The government will then link this international model with domestic supply-demand models to measure the effects of international fluctuations on domestic market conditions. The overseas monitoring agents will be dispatched by May this year, and the variability models are scheduled for completion this October. The system will go on a test run for three months from January, and will be up and running from April next year, at the earliest.
EU: Grain import tariffs removed to ease market pressures
18 February 2011 (Futures and Commodities)
Moves were made in Brussels yesterday to remove any remaining tariffs on imported cereals in an attempt to take some of the heat out of the cereal market.
The suspension of tariffs which will run to June this year relates to soft wheat and feed barley, where the preferential tariffs of 12 euros a tonne and 16 euros a tonne respectively will be reduced to zero. The move was promoted by the French to help protect their pig and poultry sectors which have been badly hit by the recent surge in cereal values.
EU Agriculture Commissioner Dacian Ciolos hoped the proposal would reduce tensions on the European cereals market. “While prices remain high on world and EU markets we have an obligation to do what we can to help ease the situation until the end of the marketing year.” The outlook for the world cereals markets in 2010/2011 suggests that prices will remain high, given that world cereal stocks will be 62million tonnes lower than at the end of the last marketing year.
The formal regulation will be published in the Official Journal next week. To avoid penalising traders who have cereals en route to the EU, transport time will be taken into account. Although designed to reduce the internal price of cereals, the move by the EU is believed to have had little effect on Wednesday’s drop in grain futures, where speculation surrounded Chinese trading was considered to have been the significant factor.
Pakistan: Govt expects bumper wheat crop, lacks proper storage
17 February 2011 (Asian Pulse)
Government has set wheat procurement target of 6.5 million metric tons expecting a bumper crop estimated to be 23.5 million metric tons for 2011 wheat season. According to the sources the wheat crop acquired officially by Government is kept as a back up to control prices through balanced supply and demand procedures but it lacks proper storage facilities as during the last 6 decades nothing concrete was done in this regard. The GoP, while ensuring minimum wheat support price of Rs.950/- per 40 kgs to the farmers, procures around 28 to 30pc of the total crop to safeguard the interests of the farmers whose efforts have made the country not only self-reliant but also enabled to export the surplus wheat this year. The wheat isstored for up to 6 to 7 months of a season and released to the deficit provinces and to the local flour mills. So far the wheat procurement agencies has floated tenders for about 60,000 bales (18 million bags) of Jute bags for packing of 100 kgs of wheat and 72,000 bales (72 million bags) of Polypropylene bags for 50 kgs packing in order to procure and store the expected bumper crop, officials said.
The quality control of grains also depends on whether grain is handled in sacks or in bulk. Sacks are advantageous where labour is cheap and when grain in moved in small quantities over short distances, mainly because sacks do not require specialized transportation, handling and storage facilities. Sources in Food Departments fear that the government would lose the advantage of bumper crop as the government is once again going to use polypropylene bags in bigger volume to procure the wheat which last year resulted in loss of the crop and revenue. The polypropylene bags intrinsically started decaying gradually with the increase in the temperature and moisture at godowns and turned readily into disintegrated powder, hence tons of wheatwas polluted ultimately. In absence of bulk handling facilities in Pakistan, jute bags have a wide spread use for packing wheat and other cereals and grains. Jute Bags offer multiple reuse capability and therefore 75,000 – 85,000 MT of sacking is sufficient to cater the packing of 7.0 to 7.5 million tons of grains, cereals, fruits, vegetables, dry fruits, cotton, paddy/rice etc.
World grain stocks “may tighten further”
15 February 2011 (Agrimoney.com)
World grain stocks, already squeezed, are in danger of tightening further in 2011-12, Yara International has warned, highlighting the poor condition of winter crops and an incomplete rebound in fertilizer sales. The nitrogen giant said that a rise of some 5%, to nearly 2.3bn tonnes, in world grain production was necessary to match it to demand. “A substantial harvest increase in the 2011-12 season is needed merely to avoid a further decline in inventories,” Yara said, forecasting that consumption would rise by about 2%. However, latest crop progress reports have “not been supportive of such an increase”. While the Norwegian group failed to pick out examples of struggling crops, the comments follow well-publiciseddrought setbacks to winter wheat in China, the top grower of the grain, and the US, the leading exporter.
Furthermore, Yara, the top nitrogen producer, highlighted a reluctance among farmers to apply as much of the nutrient as they did in 2007-08, when crop prices last soared, implying less support to yields. Forecasts for world wheat output 2011-12 and (surplus over demand) Commonwealth Bank of Australia: 659m tonnes, (-15m tonnes) Macquarie: 670.3m tonnes, (-1.8m tonnes) Societe Generale: 670m tonnes, (-3m tonnes) “Season-to-date nitrogen fertilizer deliveries in Western Europe are 13% ahead of last season, but still 4% behind the 2007-08 season, when farmers also had strong incentives to increase fertilizer application,” Yara said. “To match the 2007-08 season, deliveries in the second half of this season wouldneed to be 20% higher than last year.” In the US, nitrogen deliveries were also running 4% behind 2007-08 rates.
Yara’s assessment comes amid a rash of preliminary estimates for 2011-12 crops, with Commonwealth Bank of Australia, for instance, forecasting a 15m-tonne deficit in world wheat production, following a 17m-tonne shortfall in the current season. Forecasts for world corn output 2011-12 and (surplus over demand) Macquarie: 846.4m tonnes, (+6.5m tonnes) Societe Generale: 874m tonnes, (+26m tonnes) Macquarie has forecast 2m-tonne shortfalls in world soybean and wheat production, but growth of nearly 5m tonnes in the global corn harvest.Last week, Societe Generale forecast a 16m-tonne increase to combined corn, soybean and wheat stocks in 2011-12, thanks to a sharp return to surplus in corn production. Levels of crop inventories areseen as a key signal of price movements, particularly when compared with consumption to calculate the stocks-to-use ratio.
Yara’s comments came as it unveiled results for the October-to-December quarter which it warned two weeks ago would fall below market expectations, if beating those of a year before. Forecasts for world soybean output 2011-12 and (surplus over demand) Macquarie: 260.3m tonnes, (-1.9m tonnes) Societe Generale: 261m tonnes, (-8m tonnes). Earnings before interest, tax, depreciation and amortisation (ebitda) for the quarter more than doubled to NOK2.99m, in line with the downgraded guidance of NOK3.0m. After-tax profits rose 9.9% to NOK1.56bn, on sales up 27% at NOK17.5bn. Yara shares stood 2.6% lower at NOK325.10 in lunchtime trade in Oslo.
India Foodgrains Production in 2010-11 Estimated at 232.07 MT ; 2nd Advance Estimates of Crop Production Released
9 February 2011 (Press Information Bureau, Government of India)
The second advance estimates of crop production for 2010-11 have been released today (9 February 2011). We are likely to produce 232.07 million tonnesof foodgrainsduring 2010-11 compared to 218.11 million tonneslast year. This is only marginally below the record production of 234.47 million tonnesof foodgrainsin 2008-09. We are likely to achieve record production of wheat (81.47 million tonnes), pulses (16.51 million tonnes) and cotton (339.27 lakhbales of 170 kg. each) this year.Central Statistics Office (CSO) has estimated that the agriculture, forestry and fishery sector is likely to show a growth of 5.4% in its GDP during 2010-11, as against the previous year’sgrowth of 0.4%. The second advanceestimates of crop production for 2010-11 confirm the findings of CSO. It may be noted that such a high level of production will be achieved despite significant crop damage due to widespread drought in Bihar, Jharkhand, Orissa and West Bengal and the effects of cyclones, unseasonal heavy rains, and severe cold wave frost conditions in several parts of the country.
The major credit for this second highest ever production goes to the resilience shown by our farmers. However, their efforts would not have yielded such rich dividends without the backing of our scientists and the extension machinery in the States. The Central Government has supported these efforts through several policy initiatives. There has been huge increase in investment in recent years – Gross Capital Formation in Agriculture as a proportion of agricultural GDP has gone up from 14.1% in 2004-05 to 21.3% in 2008-09. Flow of agriculture credit in 2010-11 is likely to reach Rs.4 lakhcrorefrom the level of Rs.86,981crorein 2003-04. MSPs of major crops such as paddy, wheat and pulses have increased bybetween 75% to 125% between 2004-05 and 2010-11.
Adequate and timely supply of agricultural inputs including seeds and fertilizers has been ensured. Focused interventions under several schemes including RashtriyaKrishiVikasYojana, National Food Security Mission, AcceleratedPulses Production Programmehave helped the farmers in achieving bumper crop production. The production estimates for major crops for 2010-11 are as follows: Foodgrains – 232.07 million tonnes; Rice – 94.01 million tonnes; Wheat – 81.47 million tonnes; Coarse Cereals – 40.08 million tonnes; Maize – 20.03 million tonnes; Pulses – 16.51 million tonnes; Tur – 3.18 million tonnes; Urad – 1.45; million tonnes; Moong – 1.12 million tonnes; Oilseeds – 27.85 million tonnes; Soyabean – 10.47 million tonnes; Groundnut – 6.81 million tonnes; Cotton – 33.93 million bales of 170 kg each
Iraqi flour prices triple on wheat import shortages
2 February 2011 (Iraq Directory)
Iraq’s flour prices have tripled over the last two months because of shortages in imported wheat supplies, threatening to push up food prices that have already stirred protests in some poorer parts of the country. Iraq is one of the world’s largest wheat importers and much of the government’s budget is spent on a food ration programme that supplies 60 percent of Iraqis. Merchants and traders said prices had spiked as officials had been unable to supply flour.
“When there is no flour in food rations for a month, market prices go up as people need this important staple and will continue to buy it,” said Mustafa Kadhim, 30, a flour merchant in the main wholesale market in eastern Baghdad. Global food prices hit their highest level on record in January, contributing to turmoil in other countries already facing high unemployment and poverty. Wheat prices on Thursday hit their highest level in two and a half years. In Baghdad markets, a 50-kilogram sack of flour which sold at 10,000 Iraqi dinars, or $8.50, two months ago, now sells for 30,000 dinars, or $26, a bag, according to local merchants. Government officials say price increases are temporary because they have local wheat instock and are waiting for the arrival of imported wheat from the ports and from overseas to mix with Iraqi produce to manufacture flour.
“Yes, there was a shortage in December until mid-January, but now we have 200,000 tonnes of imported wheat and 260,000 tonnes of local wheat in stock which covers needs for over a month,” Muthanna Jabbar, director general of Iraq’s grains trading board, said. “In the coming few days, flour will be available in the market and (average prices) will go back to normal. Wheat is arriving constantly,” Jabbar added.