The first projections for the 2014/15 marketing year indicate that world grain supplies are likely to remain abundant.
Although demand is set to pick up, it will likely be outpaced by the increase in supplies.
The unknown in the global grain market is how large the impact will be of the El Niño weather, which is expected to approach later this year.
On Friday, the US Department of Agriculture released its May World Agriculture Supply and Demand Estimates (WASDE). The report included the first supply and demand projections for the 2014/15 marketing year. World corn production is set to inch 60,000 tons above the 2013/14 record-high level, which will leave world corn supplies abundant in the upcoming marketing year. The harsh US winter has hurt wheat crops and therefore production is set to decline 17m tons in 2014/15 from the 2013/14 marketing year. World soybean production is projected by the USDA to increase more than 16m tons in the 2014/15 marketing year.
World corn demand is projected to climb 17m tons although a stable oil price will limit demand for ethanol. Total world demand for wheat is projected to slide almost 7m tons lower in the 2014/15 marketing year compared to 2013/14 as feed use is set to be lower. Finally, world soybean use is projected by USDA to jump close to 11m tons from the 2013/14 marketing year. Although, both demand for corn and soybean is set to increase, it will probably be outpaced by the increase in supplies, which will leave ending stocks some 13-15m tons higher. Regarding wheat, the drop in demand will more or less match the decline in supplies, consequently ending stocks are projected to about unchanged.
Hence, assuming normal weather going forward the supply situation on the world grain market looks benign. However, with El Niño weather looming this bright picture may change as crops in Australia, Southeast Asia and South America are in jeopardy. Numerous reports indicate a high likelihood of El Niño weather later this year, although it remains too early to predict how strong the weather will be. Consequently, there is a risk that the grain market balance may come under pressure. The grain market forward curves are somewhat flat with some backwardation in the short end of the soybean curve. Hence, the market does not currently look to be factoring in a severe El Niño effect.
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