It is a sign that we have seen a dramatic turnaround in global grain supply and demand in the past couple of months; markets are starting to focus on demand.
Over the past few years demand has really taken a backseat to huge supply levels. Growers responded to the higher prices of 2008 and expanded plantings while demand was hurt by the slowdown in the global economy. This led to a global build-up in stocks that pressured prices in 2009 and in the early part of 2010. Supply over the last couple of years has had demand well covered.
Although supply led rallies - like the one we have seen recently in wheat - can be exciting, they tend to be unpredictable and short-lived. Conversely demand led rallies creep up on you but tend to last longer and are stronger.
While wheat has stolen the limelight recently with dramatic price movements, corn prices have plodded along but in so doing are building a strong demand base.
Last week USDA estimated a huge US corn. Despite this, confidence is building for a demand led rally. China has already bought US corn and there are 'hints' of even more aggressive Chinese corn-buying plan with dwindling supplies of feed grains out of the Former Soviet Union (FSU). If China picks up the pace on new-crop US corn purchases, look for the corn market to attempt to slow demand by way of higher prices.
The impact of Chinese demand is already being felt in the soybean pit. US soybean exports to China are currently ‘off-the-charts’ and Chinese demand may not even be satisfied by record crops.
If Chinese demand remains solid it will set up an auction for global plantings between the different grains. Wheat has the early bidding but corn and soybean may yet enter the fray.