Tight grain supplies, surging oil and commodity prices pose a
threat to world food security.
With the world economy continuing to recover, the
International Monetary Fund (IMF) forecast at the start of the
year, that global economic output would expand by 4.5% in
2011. The recovery being led by emerging economies where
activity remains buoyant, contrasting with the subdued activity in
advanced economies. But the recent surge in global oil prices,
prompted by spontaneous political unrest in the Middle East and
disruption to Libyan oil supplies, poses a serious risk to the
global recovery, as high oil prices weaken trade balances, add to
inflation, while putting pressure on central banks to raise interest
rates, at a time, when economic growth remains lacklustre in
many countries.
Increasing incomes in developing countries have boosted
demand for meat and dairy, requiring more grain for livestock
feed and land for grazing animals, rising demand for bio-fuels and
adverse weather have tightened supplies, and prices of cereal and
oilseeds have risen sharply. But the recent uncertainty and
volatility in the oil market has further worsened prospects for
world food security, especially the price outlook for crops, just
as planting starts in some of the major growing regions.
According to the UN’s Food and Agricultural Organization
(FAO), any further ‘spikes’ in oil prices, could exacerbate an
already precarious situation in food markets. Besides raising
farm fuel bills, oil costs also have a bearing on the costs of
fertilizers and sprays, providing a significant upward threat to
growers' cost of production, which would feed through into
higher food bills. The FAO forecast, that with global food
consumption outpacing supply, “prices are projected to increase
over the next decade and to continue to be at levels on average
above those of the previous decade.”
Tipping through the grain door regulates the
material flow rate to the Lancaster Series mobile
shiploader from B&W Mechanical Handling. For
more details on B&W’s grain handling equipment,
please see p89 of this issue.
 
PLANTING CONDITIONS GENERALLY FAVOURABLE FOR THE
2011 CROP
Planting conditions in northern hemisphere countries were
generally favourable for winter grains. The global area planted to
wheat is projected to rise by about 3% to 224m/ha, the largest
since 1998, as many countries increase wheat plantings, in
response to higher prices. While forecasts of production and
consumption are tentative, and concerns remain about crop
prospects in some major producers, the International Grains
Council (IGC) projects global wheat supply and demand to be
broadly in balance in 2011/12, with global wheat output
expected to increase by 24mt (million tonnes), to 672mt.
 
NORTH AMERICAN AND EU PLANTINGS TO RISE
The US wheat area is expected to rise by 6% to 57m/acres, due
to high prices and tighter supplies of quality milling wheat, but
yields expected to be 6% lower than the record achieved last
year, with production forecast around 57mt. Concerns persist,
over the state of the US crop, although a recent government
report (8 March), indicated that winter wheat conditions in the
major US growing areas were steady or improved. Concerns
also exist for Canada, where some areas are water-logged the
Canadian Wheat Board (CWB) forecast wheat output to rise to
almost 24mt. Like North America, EU wheat sowings are also
raised, indicating a larger crop.
 
DIFFICULT PLANTING CONDITIONS IN RUSSIA SUGGEST
SMALLER EXPORT SURPLUS IN 2011/12
With winter plantings affected by the summer drought, it was
expected that there would greater emphasis on spring plantings.
But conditions for Russian crops are not as favourable-patchy
snow cover in key areas, and seed, finance and fertilizer in short
supply for spring sowings-with some farmers considering
switching wheat acreage to sunflowerseed. Anticipating reduced
output, Rabobank expect Russian wheat exports will be less than
10mt in 2011/12, and, even with improved Kazakh and Ukraine
prospects, combined wheat shipments from the Black Sea bloc
are unlikely to exceed 20mt. Russian officials recently
announced that the ban on grain exports may be extended, until
the end of the year. Ukraine’s grain plantings are forecast to rise
to 15.7m/ha and despite severe winter frosts, crop conditions
are reported to be satisfactory, soil moisture contents sufficient,
with damaged crops reported on less than 10% of the total
planted area.
 
DROUGHT CONCERNS IN CHINA’S NORTHERN WHEAT
PROVINCES SAID TO HAVE IMPROVED
Despite reports that eight major wheat producing provinces
covering an area of 5.71m/ha experienced drought, with
1.04m/ha being severely drought-hit, Chinese officials say drought
concerns for winter wheat in the north of the country, have
improved-farmers are said to have planted an additional
66,600/ha of wheat. India is on track to produce its fourth
record crop of 83mt, with stocks of over 14mt, may lead to
wheat exports being resumed.
 
WHEAT THE MOST VULNERABLE GRAIN TO PRICE FALLS
The Australian Bureau of Agriculture and Rural Economics
(ABARE) forecast that even with increased plantings, the 2011
Australian wheat crop will fall to 24mt, 2mt below last year’s
record crop. They also forecast global sowings of the major
crops to grow by 3–4% this season, as high prices encourage
farmers to bring less productive land into production, and have
identified wheat as the most vulnerable grain to price falls, due
to its small use in making bio-fuels, with average wheat values in
2011/12, to fall 19% below those in the current season, with
“increased supplies forecast to outweigh a rise in demand.”
 
DROUGHT REDUCED CROP IN 2010 CUTS SUPPLIES BY 20MT
World wheat production in 2010/11 is forecast at 648mt severe
drought in Russia, Kazakhstan and Ukraine dramatically cut
production prospects, and prompted export restrictions at a
time of growing demand, partially offset during the season by
improvements in southern hemisphere crops. Wheat
consumption is forecast to increase by 2% to 663mt. Feed use
increased by 6mt to 123mt boosted by competitive prices
relative to corn, and ample lower-grade wheat availability in
Australia and Canada, with food/industrial use up by 5mt to
540mt.
 
WHEAT PRICES EASE BUT REMAIN SIGNIFICANTLY HIGHER THAN
LAST YEAR
While strong demand for feed supplies underpinned trade there
are signs that rationing by users, in response to prices that hit
two-year-highs in Chicago, Paris and London futures markets,
trimmed global trade to 124mt. With significantly lower Black
Sea exports, prospects for traditional suppliers improved-US
record wheat exports of 36mt amid greater competition from
Australia 15mt and Argentina 7mt. While EU exports of 21mt
slightly lower due to tight supplies of feed grains and a stronger
euro; European Central Bank (ECB), announcement on curbing
inflation caused the Euro to strengthen in anticipation of a 0.25%
interest rate rise in April, making EU grain exports on
international markets less competitive.
The surge in wheat prices was fuelled by smaller crops,
export restrictions and tight supplies of milling quality wheat.
Subsequently, they reflect competition for new crop acres, tight
US corn market, poor winter wheat conditions in the US,
political unrest in Middle East/North Africa-Export bids for Hard
Red Winter Wheat (HRW) $360 FOB (free on board) Gulf (4
March) up 73% on last year; EU wheat French Grade 1 $358
FOB Rouen (4 March) up 117%. Prices have since eased
boosted by improved southern hemisphere prospects and less
import demand from Russia, with global stocks forecast at
182mt and stocks-to-use ratio at 27%.
 
MORE ACRES PLANTED TO CORN IN 2011 BUT OUTTURN
DEPENDS ON YIELD
For coarse grains, harvesting of the 2010 crop is incomplete and
planting intentions for the next crop are uncertain; IGC
preliminary estimate for corn, a major coarse grain, indicates
plantings will increase in several key producing countries
including the US and China, with global production expected to
set a new record in 2011, but unless yields are exceptionally high
a second consecutive drop in global supplies is projected. Based
on strong demand, corn supplies are projected to remain tight
with closing stocks set to fall for a third successive year.
USDA expects US corn plantings to increase by 4.3% to
92m/acres, and using trend yields of 162bu/acre implies a
harvested crop of around 345mt. Other analysts like Darrel
Good Ag. Economist University of Illinois, believes the trend
yields to be closer to 159bu/acre. This indicates a larger planted
area of 93m/acres to allow for yield risk, and requires corn
futures to strengthen to get the necessary acreage response.
According to one analyst, US weather in April may provide a
clue; warm dry conditions favour corn, while cooler wetter
conditions favour soyabeans.
Chinese farmers are likely to plant more acreage to corn in
preference to other crops this spring, to take advantage of
government support. According to officials responsible for the
national grain reserve, corn should only be used for animal feed,
not for exports, or industrial use, supporting rumours that
China’s corn stocks are tight this season, and that increased
imports of corn will be required to satisfy growing animal feed
demand and replenish stocks. The US Grains Council said
earlier in the year that China may increase corn imports by up
to 9mt in 2011/12.
 
REDUCED COARSE GRAIN OUTPUT BUT RECORD DEMAND
DRIVEN BY FEED AND ETHANOL
Global coarse grain production fell dramatically from earlier
expectations and is forecast at 1,080mt; following crop failures in
Russia, Ukraine and smaller crops the EU and US. Growing feed
and ethanol demand has driven demand to a record 1,120mt.
Feed use is forecast up by over 1mt to 649mt, while
food/industrial growth is forecast to increase by 12mt to 471mt
mostly due to ethanol production. Global trade is expected to
fall to 117mt, due to high prices, with the exception of the EU,
where imports have increased reflecting tight feed grain supplies
this season.
Even with a larger planted area, global corn production
forecast at 814mt, will only be 2mt more than last year. Better
crops in several countries including, China 168mt, Brazil 53mt,
Argentina 21mt, offset by reductions in the US crop 316mt. With
consumption forecast at a record 835mt — feed use up 10mt to
492mt, food and industrial use, mainly ethanol up by 9mt to 342mt
— will outpace supply, sharply reducing global corn stocks.
 
OIL PRICE SPIKES SUPPORT ETHANOL BUT CONFLICTING
POLICIES APPARENT
Prior to the unrest in the Middle East and subsequent disruption
to Libya’s oil supplies, the grain complex was heading up, based
on strong fundamentals and speculative fund buying. Since then,
crude oil prices have rallied-Brent U$115 a barrel (4 March),
before retreating to U$105 (8 March). The recent spike in oil
prices has motivated more US ethanol plants to join production,
despite high corn prices. Typically, high oil prices support
ethanol production by improving operating profits-this year,
while ethanol prices have risen more than 5%, gasoline prices are
up by more than 20%.
While USDA indicated that corn use for ethanol production
is forecast to grow to 5Bn/bu, a team of economists within the
University of Missouri’s Agriculture Policy Research Institute
(Fapri), advocate the removal of government tax credits
(renewed this year against significant political opposition); in
their forecast corn used by ethanol plants would fall to 4.6Bn/bu
in 2011/12, a decline of 5.5%, thereafter, modest growth of 2.5mt
(100m/bu) a year to 2020/21. The opposing pro/anti ethanol
camps are expected to debate this through the summer in
Congress, although the odds of obtaining American public
support for more ethanol may prove difficult, if conditions in
Europe are any reflection of what to expect. Germans are
refusing to purchase gasoline with higher ethanol levels due to
fears that it could damage their cars.
In 2010/11 US ethanol bio-refineries are forecast to convert
126mt of corn (4.95Bbn/bu) 43% of US corn use, into 13.8Bn
gallons of ethanol and almost 40mt of high value livestock feed-
DDGS (Distillers Dried Grains with Solubles), corn gluten feed
and meal. Dairy cattle, swine and poultry industries are utilizing
more DDGS to displace some quantities of corn and soyabean
meal in the US. DDGS prices are strong, with exports to
several destinations including Asia, Europe, and forecast over
10mt in 2010/11.
 
IMPROVED OUTLOOK FOR PIG AND POULTRY TEMPERED BY HIGH
FEED GRAIN PRICES IN 2011
With consumer demand recovering, pork output is expected to
increase by 2% to 103mt with China responsible for 80% of the
increase. Similarly, poultry production is forecast to rise 2% to
76mt, with production growth in many countries expected to
occur in the absence of major disease outbreaks. But growth
estimates for pork and poultry are tempered by rising feed grain
prices, which may adversely affect production. Beef production
in Brazil, India and Mexico is forecast to expand, but their
growth between 2–3% will not offset the decline in other
countries, resulting in tight global supplies for the year.
 
BETTER DOMESTIC CROPS IN SEVERAL COUNTRIES
CURB CORN IMPORTS
Global corn trade is forecast at 92mt, 1mt below last year.
Mexico suffered a late freeze and is expected to increase
imports to 9mt, while EU imports rose reflecting tighter
domestic feed grain supplies. Major exporters like the US are
expected to export 50mt, Argentine 13mt, Brazil 10mt. Global
corn stocks are expected to fall sharply by 22mt to 123mt, with
the major exporter stocks, especially in the US down to 17mt,
with stocks-to-use-ratio of 5%. The tight situation for US corn
supplies led to corn rallies through February/March not seen
since 2008. US Corn 3 yellow FOB Gulf $309/t (4 March) up
85% from $167/t a year ago has since fallen to around $283/t
(10 March). Argentine corn exports have now shifted from a
premium to a discount to US corn exports. Brazil’s corn
exports at 9mt are at record levels helped by high international
prices and strong US soyabean exports that have tied up port
capacity.
 
SMALLER ACREAGE AND SEVERE DROUGHT
REDUCE BARLEY OUTPUT
With a lower planted area and following the severe drought in
Russia which halved the crop to 8mt, reduced Ukraine output
to 8mt and that of the EU to 53mt, has cut barley output to
124mt down 25mt. Trade is also forecast lower at 16mt. Global
consumption of barley fell to 139mt, due to reduced supplies
and demand for feed, in Russia, partially offset by greater use in
 the EU, Morocco and Syria amongst others. Stocks are down
14mt to 22mt with export prices virtually more than double
those of last year. Export prices EU (France) Barley FOB
Rouen) $283/t (4 March).
 
SORGHUM PRODUCTION FORECAST UP BY 4MT
Global sorghum production is forecast at 64mt, up 4mt on last
year, with increases posted for most countries with the
exception of the US. Prices for sorghum have tracked corn-
Sorghum FOB Nola at $303.62/t (Mar 4) for March delivery, 77%
up on last year.
 
US SOYABEAN PLANTINGS EXPECTED TO RISE IN 2011 BUT
STOCKS REMAIN TIGHT
US farmers may plant soyabeans on 78m/acres in 2011,
1.4m/acres above last year, and based on trend yields indicate a
soyabean crop of 91mt (3.345Bn/bu). But with usage similar to
last year, new crop stocks could look as tight as old crop,
keeping prices high-this year. Joseph Glauber USDA’s senior
economist suggest it would be one to two years before the
extreme tightness in the oilseed complex relaxes. While the US
Planting Intentions Report due end March should provide a
better indication of US acres devoted to soyabeans, prices likely
to maintain a risk premium through summer until pod setting
period.
 
REVISED ESTIMATES FOR SOUTH AMERICA IMPROVE 2010
SOYABEAN HARVEST PROSPECTS
Despite a larger planted area, USDA estimate global oilseed
output in 2010 at 444mt, a new record, but lower than originally
envisaged. Lower soyabean 258mt and rapeseed 58mt output,
offset by larger crops of groundnut 35mt, cottonseed 43mt and
palm kernel 13mt, while sunflower 31mt and copra 6mt crops,
remain virtually unchanged. Global exports of oilseeds are
forecast to rise to 113mt, mainly due to increased soyabean
exports up by 5mt to 98mt, with the US, Brazil , Paraguay and
Canada posting gains and reducing global stocks to 68mt by the
end of 2010/11.
While the USDA estimate pegs the soyabean crop for the
major producers Brazil 70mt, Argentina 50mt and the US 91mt,
ABARE provides a more upbeat forecast-US 97mt some 6mt
higher. Agroconsult and Oil World forecast the Brazilian soya
crop at a record 72mt, boosted by timely rains, which improved
prospects in Rio Grande do Sol and in Matto Grosso, 2mt above
the USDA estimate; while the Buenos Aires Cereals Exchange
(BACE) believe the Argentine soya crop will be closer to 49mt
slightly below USDA’s estimate.
 
HEAVY RAINS HAMPER SOYABEAN HARVEST IN BRAZIL
However, the heavy rains in March caused concern, not only for
the Brazilian harvest but also for the follow-on-corn crop, where
sowings are running at half the pace of last year. Many farmers
in Brazil plant corn directly behind soyabeans for a double-crop
(40% of the national corn crop is produced in this way). Some
analysts including Michael Cordonnier of Soybean and Corn
Advisor pegged the estimate for Brazil’s soya output to 70.5mt
still a record, but below other forecasts, due to delays in areas
like Matto Grosso, which produces nearly 30% of the national
soya crop, where the harvest in early March was only one-third
complete. With logistics stretched, (late and possibly record
crop) farmers say they can harvest only a few hours a day and
even then are being forced to harvest soyabeans with moisture
contents, some as high as 30%, at a time when they have already
sold 70% of their soyabean crop, and need to deliver by the
deadlines stipulated in the contracts.
Record soyabean exports from the US 43mt and Brazil
expected to export 32.5mt. Paraguay’s soyabean exports are also
raised to 5.6mt. The Argentine’s soyabean exports are lower at
11mt but exports of soyabean meal at a record 29mt. Canada’s
rapeseed exports at 6.8mt reflecting a stronger export pace,
while Ukraine’s sunflowerseed exports benefited from sustained
demand from the EU-27, up to 0.4mt.
 
CRUSH MARGINS STIMULATED BY BIO-FUEL DEMAND
Global oilseed crush is expected to rise by almost 20mt to
378mt, buoyed by increased livestock and bio-diesel demand.
Demand for oil meals and fishmeal, are forecast to rise to
255mt, 17mt more than last year. New crop markets were also
bullish, with increased demand for bio-fuels production likely to
keep supply balances tight, helped by the rally in corn and other
markets in early March. The fundamental tight supply situation in
Europe and healthy crush margins encouraging processors to
continue to operate at maximum capacity but, given the dearth
of seed available, the rate of processing may not be sustainable.
While the rally in vegetable oil and rape meal markets, continue
to lend support and higher oilseed prices may ration demand,
the knock-on-effect from the crude oil market has also provided
support, stimulating demand for vegetable oil, further boosting
crush margins.
 
GROWING DEMAND FOR VEGETABLE OIL AND ANIMAL FEED
BOOSTS CHINA’S SOYABEAN IMPORTS
Strong demand from China for imported soyabeans, boosted by
a falling domestic crop (farmers favour grains and horticultural
crops, which attract greater levels of government support), and a
growing need for animal feed, are estimated to rise to 58mt with
26mt expected to be of US origin — 1mt more than current US
estimates. The upbeat assessment from the American Attaché
based in Beijing, is due to the strong and growing demand for
vegetable oil and protein meals-soyabean oil directly boosted by
Chinese consumers growing wealth-soyabean meal indirectly
through a growing appetite for meat. Additionally, growing
demand for meat is spurring the consolidation and structural
adjustment of livestock producers into industrial enterprises
keener to buy soyabean meal than small time farmers.
 
BRISK PACE OF NEW CROP SALES TO CHINA
New crop US soyabeans have yet to be planted, but sales of 5mt
which usually occur in March/April were sold late January with
80% destined for China. Large sales to China and low US stocks
of 5mt, are contributing to higher prices. US export bids, FOB
Gulf, averaged $548/t (4 Mar), compared to $367 FOB last year,
further pressuring supply. However, improved prospects for the
Brazilian soya crop and seasonal shift in China’s buying demand
have contributed to prices easing with US export bids lower
averaging $539/t (10 March). With the focus directed to new
crop weather and pipeline issues related to trade out of Brazil
and Argentina (dock worker strikes and raids on multi-national
grain exporters for tax avoidance) are expected to contribute to
a very volatile outlook, and has “put a floor under the soyabean
market,” Benson Quinn Commodities said. America would be
“unable to absorb any additional export demand if Argentine
export shipments are compromised.” According to ABARE
soyabean prices, supported by faster rising demand, will average
10% less next year, and by 2015/16, prices are forecast to fall by
one-quarter from 2010/11.