Monday, December 29, 2008

USDA reports a bearish climate

More wheat, larger carryout
The USDA lifted global 2008/09 wheat production another 2mmt to a new record of 684mmt – with increases mainly for Canada and the EU-27, which offset a reduction for Argentina. World wheat consumption was lowered reflecting a reduction in wheat food use in US and Vietnam. Global wheat feeding is increased owing to larger supplies of downgraded wheat in Australia and Brazil. Global wheat ending stocks were raised 2mmt this month, with the majority of the increases in our major north American competitors.

Big lift in corn stocks
Global coarse grain supplies for 2008/09 were projected another 7mmt higher this month with beginning stocks raised 1mmt and production raised 6mmt. The increase in carry-in stocks reflects upward revisions to 2007/08 production for Australia and Brazil sorghum and South African corn. Increased 2008/09 global coarse grain output is driven by higher projected corn production for China, EU-27, Canada, and Ukraine; higher projected barley production for Canada; and higher sorghum production for countries of Sub-Saharan Africa. Partly offsetting these increases was a reduction of 2mmt in Brazilian corn production estimates.Global coarse grain consumption is projected down 7mmt mostly on lower expected demand from the US ethanol processing sector. Global coarse grain stocks for 2008/09 are projected at 166mmt, up 15mmt and the highest since 2004/05.

EU malt barley prices on retreat
EU malt barley prices lost another US$5/t back to US$160-166/t with the market pressured by large amounts of unsold French and UK barley. Like in many areas of Australia, weather damage and quality issues have made contract executions difficult.Some of these issues may be related to high priced contracts with buyers being especially particular about quality. Finance is also a problem and this is causing difficulties especially in cases where sellers require the buyer to open a letter of credit. A tender for the sale of a cargo of UK barley has been issued following a default by the buyer and this has also unsettled the market with some traders concerned that this may not be an isolated case.Buyers appear to be well covered for the nearby positions and with prices continuing to fall, there is no reason to rush to buy further quantities. With quality issues in Australia, Canada looks to be the major source of export competition. StatCan recently increased its barley production estimate by 500,000t.New crop prices are at a premium US$30/t, but activity is very light with buyers in no hurry to extend cover. A fall in Denmark barley area (higher wheat plantings) is thought to be offset by higher plantings in UK and France. Ideas that EU growers would abandon barley plantings appear unfounded.The jury is still out about what the GFC (Global Financial Crisis) will do to beer, malt sales and hence malt barley demand. Rising unemployment rates will have a say, but beer sales may be protected as the average consumer moves away from higher priced beverages towards beer. Is beer a necessity?

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