Grain prices may see ‘spike’ – but long-term outlook flat

December 2nd, 2015

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Category: Grains, Oilseeds

Wheats-and-Cereals450x299(Agrimoney) – Grain prices are at risk of a short-term “spike” but look poised for declines over the next few years, with rapeseed values to drop too despite extra need for oilseed meals.

The European Commission, in annual report on long-term crop forecasts, said that while world cereals markets were, mostly, characterised by “ample supply and comfortable stocks-to-use ratios”, that did not rule out the potential for a jump in prices from current levels.

“The fact that the price did not drop even further, despite the abundant supply, seems to suggest that demand for cereals remains strong,” the commission said.

“An upward price spike after a bad harvest in one of the key exporting countries seems possible,” it said, noting the “strong” El Nino weather pattern, which has a history of causing production upsets, although this time has “not had a huge impact on production”.

‘China to revert to imports’

However, longer-term, the commission was downbeat on price prospects, seeing EU soft wheat values decline from an expected average of E189 a tonne this year to E164 a tonne in 2018 – a reflection of lower energy costs – before staging a recovery to E186 a tonne in a decade’s time.

Weak energy prices, in cutting production costs, tend to lower the floor for crop prices.

The EU outlook is significantly more gloomy than investors are factoring in, with the Paris soft wheat futures market expecting a recovery in values from E176.75 a tonne for the spot December Paris contract to E194.00 a tonne in two years’ time.

The commission was more upbeat on corn, for which prices are seen showing a more modest medium-term decline, and recovering to E166 a tonne in 2025, some E5 a tonne above the average level for this year.

The briefing said: “It is assumed that China will revert to importing feed maize over the next few years,” in marked contrast to the current situation of huge inventories, which have spurred subsidy reforms to make corn less attractive for farmers to grow.

Rapemeal vs soymeal

And on rapeseed, the commission forecast a tumble in prices from an average of E375 this year to E332 a tonne in 2016 – well below a futures curve which sees values starting next year above E380 a tonne.

Indeed, a year-average of E332 a tonne would be the lowest since 2010.

The commission flagged an increased EU need for oilseeds, flagging the prospect of “expansion of the livestock sector, and hence, increased demand for oilseed meals”, which are a high-protein ingredient in feed.

However, a swing since 2005 from soymeal to rapeseed meal will reverse, encouraged by “nutritional and economic factors”

Import needs

While the proportion of soymeal – derived from soybeans grown in the main in the Americas – in in EU feed rations is “relatively low”, the feed ingredient “contains essential nutrients such as lysine and other essential proteins”.

With EU output of rapeseed likely to be constrained by crop rotation constraints, and bans on pesticides,” these developments will increase further the quantities of imported soybeans and especially soymeals in the EU.

“The EU will remain the world’s second largest importer of soybeans, accounting with China for 72 % of world oilseed imports.”

The commission added that “the first signs of higher soymeal use and import recovery are already apparent”.

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