Bullish grain price outlook continues

Grain markets have ended the week on a firm note after further indications that the tight supply and demand balance is set to continue.

May and July 2011 London wheat futures were both hovering above £200/t on Friday afternoon (1 April), while November 2011 had strengthened slightly to £169/t and January 2012 up to £173/t.

Earlier in the week the US Department of Agriculture released a bullish report which suggested grain demand exceeded expectations in the previous quarter, maintaining pressure on already tight stocks. This stock situation was likely to override a predicted increase in 2011 cropped area for corn (maize) and wheat.

“Given the long season ahead and the risk of weather disruptions along with low inventories, the outlook for the crops remains bullish,” the USDA report said. “The upside risk is considerable, and if crop potential is threatened by weather we would expect prices to visit new records.”

Previous International Grains Council estimates painted a similarly tight picture. It forecast a record global grain crop of 1.805bn tonnes for 2011/12, up from 1.726bn tonnes in 2010/11, but just short of estimated consumption at 1.808bn tonnes.

The biggest increases were forecast for Russia, US and EU, with sizeable gains also expected in Canada, Kazakhstan and Ukraine.

For wheat, the IGC said that, assuming a rise in output of some 4% in 2011/12, to 673mt, world wheat supplies and demand were projected to be broadly balanced, with carryover stocks slightly increased.

“Market fundamentals still remain bullish on the tight stock position, and this will place greater emphasis on the record global grain production forecasted for 2011,” Gleadell Agriculture said.

“This record production is essential to keep stocks constant and any future threat to the supply side of the balance sheet will encourage increased buying activity.”