By Chris HarrisThe Cattle Site– The Speaking at the recent HGCA Grain Market Outlook Conference in London, Jack Watts, senior analyst for cereals and oilseeds at the AHDB Market Intelligence unit said that wheat markets are starting to take a greater significance in global grain markets and the influence of maize is starting to diminish.
“The loss of dominance of the maize market is largely down to the drought in the US last year,” Mr. Watts said.
“There is a challenge from South America, but you won’t get the same transparency as in the US markets.
“From a wheat point of view, the US held a cushion of stocks but that is currently being eroded away and the market is starting to be more reliant on other parts of the world.”
However, he added that there is currently more risk to the world markets and in particular more weather risk.
Mr. Watts told the conference that following the drought of last year in the US, the current years has been more normal for the global wheat and coarse grain markets.
He said that the US has managed to rebound with an increase of more than 80 million tons of coarse grains.
The greater availability has meant that prices have been lower around the world including regions such as North Africa, which has also seen a rise in production
Europe has seen a rise of more than 11 million tons in coarse grains and 9 million tons in wheat, while Russia and the former Soviet Union countries are reporting a rise of 30 million tons of wheat and more than 16 million tons of coarse grains. However, Mr. Watts added that in Russia late planting in Siberia because of poor weather in the early spring has meant that not all the harvest is yet in.
South America has seen a small rise in wheat production but a drop of more than 10 million tons in coarse grains because of a switch to soybeans in many areas.
The Southern Hemisphere countries such as Australia are only small producers on the global market, but, Mr. Watts said, “they punch above their weight in exports”.
Oceania has seen a rise of more than 3 million tons in wheat production and a million tons in coarse grains.
Over this year, there has been a downward trend in prices and the Chicago maize prices and wheat prices are starting to follow similar patterns.
There is also more equilibrium between the US wheat prices and the EU wheat prices.
Mr Watts said that 2013/14 is expected to see a return to growth in demand after a year of severe rationing.
The 2013/14 year is expected to see a rise in maize production – rebounding following the drought in the US last year and better prospects for production in both the EU and Ukraine. Demand is expected to increase in line with production, Mr Watts told the Outlook Conference.
The growth in demand is being driven by a growing wealth in developing countries and a growing demand for animal products. This means a growth in demand for feed grain for livestock.
“We can expect to see a growth in the stocks to use ration,” Mr Watts said.
IN the maize market, the US is expected to regain its place at the world’s top exporter having dropped to second place last year behind Brazil because of the drought.
Mr Watts said that yields in the US have also been better than expected, but much of the increase in demand is being driven by the pig and poultry sector for feed grain and the ethanol sector for grain for biofuels.
He added that in terms of area planted, the world is dominated by the US and China, for maize and China is expected to become a much more important market globally.
In the longer term, Mr Watts said, the world has the potential to produce more maize, but market transparency is at risk as the US, the world’s most transparent grain market, loses dominance in world trade.
In the global wheat market, the stocks to use ration has been falling since 2009 and China is expected to be the highest consumer of wheat after the EU and to feed this large consumption, the world markets are going to rely on crops from Argentina and Australia, although production in Ukraine is becoming more important in global terms.
The largest importer of grain for the last three years has been Egypt and is forecast to import 9.6 million tonnes with Brazil taking second place. However, Mr Watts said that “China has now come from nowhere to third place, because of the quality of its domestically grown wheat”.
Brazil is also starting to change where it is sourcing its wheat, turning to the US instead of Argentina, also because of quality issues.
Mr. Watts said that now the worldwide market for wheat needs to become more proactive and not be a follower of the maize market, as US stocks are eroded and more US wheat is being exported to China and Brazil.
Mr. Watts said that although India had started to have a presence on the world wheat markets last season, its market is being held up by a minimum price support and the country is unlikely to have a marked impact unless global prices rise.
In Europe, export licenses have been reduced as stocks are down, but the quality end of the market is dominated by Germany with high protein wheat. The EU is expected to see stocks recover and this combined with lower US inventories is likely to create more of a trans-Atlantic balance in the market and a consolidation of prices.
For barley, feed barley base prices will in general follow the price moves of both wheat and maize.
There has been a rebound in global production of barley but despite the higher production, global trade is slightly lower, which Mr Watts said may mean increased competition on the global market.
He said that there is some stock recovery in the EU.
“Overall, there is more normality in the global grain market this season, although there is demand uncertainty and hence stock and price uncertainty,” Mr. Watts said.
“Maize remains a key driver, but is losing its dominance over wheat and in the longer term the dynamics are changing.”
he said there is going to be less US dominance and therefore less transparency in the market.
He concluded: “Food prices are continuing to rise compared to household earnings and the sector will have to deliver more value to the consumer.
“But 2013 has bucked the rising trend of volatility that we have seen for the last seven years, but in the future we will have to move away from fixed pricing mechanisms.”
Source and Photo: The Cattle Site, 22nd October, 2013.
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