Gloomy maize forecast adds to pressure on cereal prices

By Michelle Knott

- Last updated on GMT

Related tags Cereal Rice Wheat

Upward pressure on cereal prices looks set to continue, following yesterday’s announcement that the US Department of Agriculture has downgraded its yield projections for maize. The 2011 crop is now forecast at 12.5bn bushels, which is 50m larger than the 2010 crop but 417m smaller than the August forecast.

“The overall market for grain is very much driven by what is happening in the maize market, which remains extremely tight in the US,”​ Abdolreza Abbassian, senior grains analyst at the UN’s Food and Agriculture Organization (FAO) told this publication. “It means that the US will be exporting less, so countries will be importing more feed wheat as a result.”

Wheat quality

According to the FAO, average wheat prices were also up 9 percent in August given the strong demand for feed wheat and shrinking supplies of high quality wheat. Nonetheless, world wheat production is forecast to increase by 4.3 percent (or 28 million tonnes), only 4m tonnes below the 2009 record.

“There’s been a big rebound in production but that been largely in the CIS and around the Black Sea, which are areas often associated with lower quality rather than high quality wheat,” ​said Abbassian.

World coarse grain (grains other than wheat and rice) production is heading for a record 1,147m tonnes, up 2.4 per cent (or 27m tonnes) from 2010.

Plunging inventory

“Production is increasing, but not enough to build up inventory,”​ warned Abbassian.

Wheat inventories look set to reach their lowest level since 2009 and world stocks of coarse grains are also forecast to plunge, with maize inventories falling to their lowest level since 2007. Given the tight global supply and demand balance for coarse grains, its stocks-to-use ratio is forecast to fall to a historic low of 13.4 per cent.

The only exception is rice, with record production supporting a modest increase in inventory. Global production is 479m tonnes this season, up 2.5 per cent from 2010. Rice prices rose, however, with the benchmark Thai rice price up 5 percent from July. The rise was driven by a policy change in Thailand, the world's largest rice exporter, where paddy rice will be purchased from farmers at above-market prices.

Market drivers

All this pushed the FAO Cereal Price Index​ up 2.2 per cent from July to August and 36 per cent higher than in August 2010. In contrast, the overall FAO Food Price Index remained static.

Abbassian told Bakery and Snacks that financial forces such as a strengthening US dollar and the crisis in Europe are likely to have a big impact on cereal prices over the coming months: “We’ll have to see what the politicians come up with and see how it affects the financial markets.”

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