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IGC Grain Market Report


05 July 2012

IGC Grain Market Report - 4 July 2012IGC Grain Market Report - 4 July 2012

Grains outperformed the wider commodity complex in June as concerns over weather conditions for northern hemisphere crops, particularly US maize (corn) and Black Sea region wheat, provided fundamental support.
International Grain Council Grain Market Report

The deteriorating yield prospects outweighed volatile, but generally deepening, concerns over the euro area and the wider global economy. The IGC’s daily Grains and Oilseeds Index (GOI) rose by 11% during June including a 17% increase in maize and a 14% rise in soyabeans. World maize export quotations were generally stronger due to the worsening outlook for the US crop, given overly hot and dry conditions in parts of the Midwest. For wheat, there was some downward pressure related to macro-economic issues in the first half of June, but crop-related concerns then took hold, centred on falling harvest prospects in the Black Sea region. On average, rice prices were unchanged over the month as intervention buying supported export prices in Thailand while prices in Vietnam weakened on new supplies. World soyabean markets posted strong gains, given worries about US yield potential, together with solid export demand from China. While the Baltic Dry Index (BDI) for freight fell by 11% in June, grains-related rates were more firmly supported by stronger demand. The IGC grain freight index (GFI) which incorporates 15 major grains routes, decreased by just 2%.



EXPORT PRICES


OUTLOOK FOR 2012/13

GRAINS*

While the forecast for total grains* production in 2012/13 has been reduced this month, the projected output of 1,868m. tons is still up 1.4% year-on-year. This is the result of both increased plantings and an improvement in the average yield. However, the headline figure masks a marked divergence between grains. While reduced yields are expected to cut wheat output by 4.3% to 665m. tons, coarse grain production (notably maize) is set to see a significant increase, up 4.8% year-on-year to 1,203m. tons. While the market has been focusing on deteriorating US conditions for maize, prospects elsewhere have become brighter, particularly in China and India. However, the risks are on the downside unless US weather prospects improve. World grains consumption is expected to outpace output in 2012/13, expanding by 1.8% yearon- year, to 1,876m. tons. The growth is led by a 2.5% rise in feed needs, largely due to increasing meat consumption, particularly in developing countries. The forecast for world grain carryover stocks at the end of 2012/13 is reduced by 13m. tons this month, to 360m., which is now below the 369m. estimated for the end of 2011/12. Wheat carryovers have been reduced further to a four-year low of 182m. tons. Maize stocks are still expected to rise for the first time in four years, but to a reduced level of 137m. tons from last month’s estimate of 141m., mainly due to a smaller US crop. Global grains trade is forecast at 265m. tons in 2012/13, unchanged year-on-year. While maize trade is expected to reach an all-time high of 103m. tons, wheat shipments are expected to fall significantly as improved maize availability reduces feed wheat demand. Barley shipments are expected to be lower year-on-year due to a decline in EU import demand, but increased US exports to Mexico should lift sorghum trade.

WHEAT: The outlook for world wheat production in 2012/13 continued to be affected by unfavourable conditions in some countries, including a further deterioration in crop expectations in Russia. However, results from the US harvest were generally better than expected, while recent rains helped crops in parts of the EU to show some recovery from the less than ideal conditions earlier in the season. The production forecast is reduced by 6m. tons from last month, to 665m., down by 4% from the 2011/12 record. While increased global maize supplies are still expected to curtail demand, the forecast for world feed wheat use is revised higher due to likely narrower than previously envisaged price differentials. Nevertheless, reduced feed use is expected to outweigh continued growth in food and industrial uses and total world consumption is forecast to fall by 1%, to 682m. tons. Together with lower opening stocks and reduced production, higher than previously forecast demand cuts the projection for world carryover stocks by 9m. tons, to 182m., with most of the year-on-year decline of 17m. in the major exporters. The forecast for world trade is only slightly lower than last month, at 134.6m. tons (143.5m.), as reduced milling wheat imports, particularly in North Africa, are nearly balanced by an increase in projected feed wheat trade. Smaller export surpluses in the Black Sea region will see demand switch to other origins in the year ahead, especially the US.

MAIZE (CORN): Overly hot and dry Midwest weather conditions have led to a downgrade in the US maize production forecast, with projected yields now likely to be below the ten-year trend. Despite the downgrade, the crop is still forecast at a record 350m. tons, although the risks are to the downside. However, projections for some other countries, including China and India are increased this month. Consequently, world maize production is still expected to rise by 5.7%, to 917m. tons in 2012/13. Compared to 2011/12, supplies are forecast to be more comfortable and some demand is expected to switch back to maize. With meat consumption also expected to increase, feed/residual demand is expected to rise at an above-trend 6%. Industrial consumption will likely climb to new record levels, but the growth rate will be subdued and again tied to firmer demand for starch and sweeteners in China. After three successive drawdowns, the global carryover is forecast to rise, with an increase in the US offsetting generally tighter stocks elsewhere, notably in Brazil. Trade is forecast to surpass the 2007/08 record, with China, the EU and South Korea expected to be bigger buyers.

RICE

Rice supply and demand projections for 2012/13, including trade forecasts for 2013, will be presented in the next Grain Market Report (to be published on 26 July). In advance of their formal release, rice production in 2012/13 is projected to rise further, to nearly 467m. tons from the all-time high of 462m. estimated for 2011/12. This is underpinned by a slight increase in the area planted to paddy and a marginal improvement in average yields. At 1%, the expected annual growth rate is significantly smaller than in the previous year and the five-year average, and underlines expectations for only modest increases in output in Asian countries.

OILSEEDS

World soyabean production is expected to rebound by 12%, to some 266m. tons, broadly matching the 2010/11 record, although prospects are highly tentative as they depend on a marked recovery in South American crops which will not be harvested until 2013. World trade is expected to expand solidly, to 96.4m. tons (90.5m.), on increased deliveries to Asia, especially China, while world soyameal import demand is expected to edge higher on firm demand from buyers in Far East Asia and the EU. Global rapeseed/canola production is projected at 60.2m. tons in 2012/13, marginally higher than in the previous years as a larger Canadian outturn just offsets further falls in production in Europe. The smaller crop in the EU will support larger imports and, together with bigger deliveries to China, will underpin a 6% rise in world trade, to 12.4m. tons.

July 2012

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