(Updates with crop report, corn prices at 3-year low in
paragraph 8; changes dateline)
By Karl Plume
Oct 1 For much of the past six years, the global
grain markets have lurched from one crop crisis to the next,
keeping inventories low and food prices high.
Now, as harvest machines across the U.S. Midwest prepare to
reap the nation's biggest corn crop in history, a sea change
seems imminent, one that could transform the market. No longer
will a constant a fear of scarcity drive prices. Instead,
traders will be battling for market share instead of scrambling
But, experts warn, we are not there yet. At least one more
trouble-free global growing cycle is necessary to safely put the
past few years of uncomfortably high food prices behind us.
Global stockpiles, while recovering, are still far from the
80-or-so days' worth of demand that will keep panic at bay.
Chief among their concerns is that demand for cash crops
could accelerate now that prices for things like corn and wheat
have fallen by as much as half. Meanwhile, still-elevated costs
for inputs like fertilizer, seeds and fuel may dampen some
farmers' enthusiasm to keep the production throttle at maximum.
"We're not out of the woods at all," said John Baize,
president of John C. Baize and Associates, an international
agricultural trade and policy consultant.
"We're getting to where we have to have big crops almost
every year or we've got problems because demand is just growing
This autumn's U.S. bounty follows massive crops in other key
growing and exporting regions of the globe, including South
America and the Black Sea region, which have recovered from
recent severe droughts that rattled international grain markets
and fueled unrest in several import-dependent nations. The
United States itself is just a year removed from its worst
drought since the Dust Bowl days of the 1930s.
U.S. data on Monday provided a punctuation mark for years of
woes, showing that U.S. stocks of corn as of Sept. 1 - before
the current harvest now under way - fell to their lowest in 16
years. Chicago corn prices dropped to a three-year low,
however, as inventories were not as thin as feared. U.S. soybean
stocks fell to a four-year low, still more than expected.
BUMPER CROPS, STILL-TIGHT STOCKS
For grain traders, Monday's data is already old news, with
the focus firmly on U.S. Department of Agriculture projections
that this year's largest-ever global corn, soybean and wheat
crops will result in a significant gain in next year's
Soybean stocks are in the best shape despite a
smaller-than-anticipated U.S. crop, thanks to record crops in
South America. Global stocks by the end of the 2013/14 marketing
year are projected at about a 69-day supply, taking into account
domestic use and exports, USDA data showed. End-of-season stocks
over the past five years averaged just slightly less at 64 days.
World corn inventories were expected to thin to just over a
53-day supply by the end of the current season, about unchanged
from the five-year average, while wheat inventories were
estimated to be 10 days smaller than the five-year average at
about a 75-day supply, the data showed.
Despite the improvement, however, inventories are still far
from what would be deemed "comfortable" by historical standards,
said Ashmead Pringle, president of Greenhaven Group.
Only when inventories reach the equivalent of 20 percent to
25 percent of annual global demand - at least an 80-day reserve
- will consumers be able to rest easier.
Global corn stocks were last near such a level in 2002, when
prices for the grain were less than half of today's levels.
World wheat stockpiles hovered above a 100-day supply between
1997 and 2003, when benchmark prices were between 35 percent and
50 percent of today's prices.
"You need to really have at least another good year to be a
bit more comfortable with the supply," said United Nations' Food
and Agriculture Organization (FAO) chief economist,
"If for one reason or another China does not produce a
record crop and the supply situation from other major exporters
is not as good as this year, you will immediately get back to
the turbulent situation we had in the past few years," Abbassian
Most global grain importers are resting easier now than just
about any time in at least the past three years, a period when a
U.S. drought cut corn exports from the world's top supplier to a
37-year low and a worst-in-a-century drought in Russia shut off
exports for nearly a year.
Importers are now gradually shifting from their
hand-to-mouth buying strategies to more forward-buying as prices
for corn, soy and wheat have all fallen from near-record highs
to multiyear lows as the U.S. autumn harvest neared.
U.S. soybean sales to all destinations for delivery in the
2013/14 (September/August) marketing year have risen 4 percent
from a year ago, while corn sales are up 31 percent and wheat
sales are up 38 percent, USDA data showed.
Resources-hungry China currently has 28 percent more U.S.
soybeans on the books that it did a year ago and more than three
times as much U.S. corn.
Phones on U.S. grain export desks are ringing more now than
they have in at least a year. The most likely catalyst: Grain
prices are a good value.
"We spent the last three years in a high-price environment,
and we're now seeing the impact of what a low flat price
environment does to our industry," said a veteran U.S. grain
exporter who requested anonymity.
"The last time prices were this cheap in the last six or
seven years was during the financial crisis. It makes you wonder
if we didn't just go through three years of destocking and
demand rationing and now we're about to go through a year of
massive stock building and demand stimulus."
(Reporting by Karl Plume in Chicago, additional reporting by
Veronica Brown and Nigel Hunt in London, Editing by Jonathan
Leff, Marguerita Choy and Lisa Von Ahn)