Global Grain Forecasts

The United States Department of Agriculture (USDA) has published its first forecast of global grain output for harvest 2014.  This shows that both wheat and coarse grain (feed grain) production is estimated to fall this year compared to last.  However, even with this drop, production is expected to be close to, or above, consumption.  This means stocks at the end of the 2014/15 marketing year should be higher than current levels.  If true, all this will tend to put downwards pressure on global grains prices – albeit slight. 

The table below summarises the USDA figures for wheat and coarse grains.  Wheat production shows a 2% decreaseyear on year.  Much of this is accounted for by a large drop in predicted US output of 8%.  This is due to a lower planted area and the effect of the drought in some areas of the Mid-West hitting yields.  World usage of wheat is expected to drop back so that the market is generally in balance for the coming year.  Availability of grain (shown by stock levels) has not been an issue in thewheat market for some years – prices tend to react when stocks get down to around 20% of usage.  This is not forecast to change in the coming year.  However, it must be remembered that these forecasts are still highly uncertain at this stage.  If the US drought becomes more serious we could see prices surging like they did in 2012.  Also, the alternative International Grains Council (IGC) forecasts have a slightly tighter wheat market, with stocks declining year-on-year (but not by enough to really move prices). 

It is the coarse grains market that has really been driving all grain pricesover the last few seasons.  Coarse grains are feed grains and the category is dominated by maize (around 80% of total production).  The table shows that coarse grain availability (stocks as a percentage of use) dropped to low levels for harvest 2011 and 2012.  A figure below 15% sees prices moves accelerate in this market.  As coarse grains are the ‘basic’ feed cereal, price rises alsopush up other grain values, including wheat.  The USDA forecasts a 1% drop in world coarse grains output for this harvest.  Whilst usage is set to increase by a little over 1%, it is still below output.   If correct, this will see stocks rise once more – again, putting pressure on all grain prices.   

It is worth stating once again that forecasting at this time of the year is a very inexact science.  In contrast to the USDA, the IGC has maize stocks actually declining slightly for harvest 2014.   Things could still change substantially in the grain market over the coming 12 months, be these weather events such as a deepening drought in the US, or more political issues such as a worsening of the problems in Ukraine.  The forecasts suggest though, that with reasonable weather, the world looks unlikely to be short of grain in 2014/15 and this will have a bearish effect on price.