October 06, 2015

06/102015: Commodities: Markets Outlook

by John Buckley

First published in Milling and Grain, June 2015

Another giant grain crop on the way? 
Fundamentals have tipped further in favour of the grain and feed consumer since our April review as an ever loosening new crop supply outlook promises an extended period of cost restraint. Until recently, the popular view among analysts had been for an inevitable decline in crop yields from last year’s above normal levels and, in several key supplier countries, some cutback in sowings in response to this season’s grain surpluses and low prices. But it was also assumed the massive stocks carried over from the current season of plenty would cushion the forward market against the crop decline – so no reason for any drastic price increases.

In late May, it looks more bearish than that, however, thanks to a relatively mild winter, ideal growing conditions in most of Western Europe, improving weather in the US and the CIS countries, better spring planting conditions across North America, much bigger than expected maize and soyabean crops being harvested down in South America etc etc. Yes, wheat and maize crops may still be down a bit from last year’s record levels but only by about 7.5m and 6m tonnes respectively, according to the US Agriculture Department’s first official WASDE* forecasts.

The global maize crop figure is the more surprising of the two, since several analysts were talking, just two months ago, of a decline for this grain of 40m to 50m tonnes, based on smaller crops expected in the USA, West Europe, South America and the former Soviet Union. However, USDA is now looking for a US decline of only about 15m tonnes, South America down by perhaps 2.5m, Europe 5m or so and the CIS less than 2m. Also, partly offsetting these, is a forecast 12m tonne-plus crop increase for China, the world’s second largest corn producer and consumer.

If the USDA is right (and there is a world of weather to get through before the main northern hemisphere corn harvests actually start, from September onward) the global maize supply will actually be about 19m tonnes larger next season than this when carryover stocks of 192.5m are added onto the smaller crop. The world, then, may still be relatively awash with corn supplies this time next year.

Global maize consumption, in turn, is expected to jump by about 13m tonnes next season due to gains in China (+4m), Brazil (+2m, the US (+1.6m) and a host of moderate/smaller consuming countries boosting their feed consumption of this now relatively cheap grain. Even with these increases, however, maize demand will not outstrip the slightly smaller world crop, leaving ending stocks by September 2016 at an almost identical level to this year’s with stock/use ratio at a comfortable 19%. 

Read the full article in Milling and Grain HERE.
The Global Miller
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