World Grain - October 2008 - 20

GRAINMARKETREVIEW
Indicative maize export prices
U.S. No. 2 yellow corn, Gulf ports

Coarse grains
Markets remain volatile as
'outside factors' such as oil
prices and financial market
turmoil take their toll
by Melissa Alexander

July

April

Jan-08

Sep-07

June

March

Dec

Sep-06

June

March

Dec

Source: U.S. Department of Agriculture

World maize ending stocks-to-use ratio
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
2008-09**
2006-07
2004-05
2002-03
2000-01
1998-99
1996-97
1994-95
1992-93
1990-91
1988-89
1986-87
1984-85
1982-83
1980-81
1978-79
1976-77
1974-75
1972-73
1970-71

Sep-05

The unprecedented behavior of coarse grains markets a few months
ago, when maize prices approached $300 a tonne, inspired concern
among users and producers alike. But even though prices by late September stood 18% lower than their June highs, at about $236 a tonne,
unease continues to plague market participants.
The market began to retreat in July, and in August, maize prices
dropped to less than $200 a tonne. While maize prices were declining, other grains prices were dropping, the dollar strengthened from its
lows, and crude oil fell from its highs.
Many analysts attributed the declines to a market pull-out by large
pools of investment funds, which had bought grains and other physical
asset classes to seek protection against financial market turmoil and
inflationary trends. Signs of an economic slowdown in the U.S. and
other countries were expected to tamp down demand for physical commodities, discourage investors and keep maize and other commodity
markets under pressure.
But the markets have been anything but calm, as limit or doubledigit prices moves one day often are followed by the same magnitude
of price change in the opposite direction the next day. The volatility
creates a difficult environment for making marketing decisions for
suppliers and users of grains.
The volatility also illustrates that grain supply/demand fundamentals
are no longer the only factors heavily influencing prices. The biofuels
market has linked maize and soybean prices to the price of crude oil,
the fluctuating value of the dollar has influenced all commodities, and
serious financial and credit problems have complicated the situation.
The linkage of these outside factors surfaced once again in September, when an onslaught of U.S. financial institution failures sent investors running back into the perceived safe haven of physical commodities. A subsequent $700 billion U.S. government plan to "fix" the credit
and financial problems, and the consequences of that plan, probably
will continue to affect commodity price movement for some time.
Despite the clear push and pull on grain prices from other forces,
fundamentals have exerted some influence. An August U.S. Department of Agriculture (USDA) report on 2008-09 maize production projected a record world crop and the second-largest U.S. crop on record,
which helped to pressure prices.
But the USDA's next report shaved both world and U.S. production
numbers for maize and other coarse grains. Global coarse grains production in 2008-09 was projected in September to reach 1.087 billion
tonnes, down 2.4 million from the previous month, while global maize
production was put at 782.96 million tonnes, down 6.62 million from
August and down nearly 8 million from 2007-08.
The U.S. 2008-09 maize harvest was forecast at 306.65 million

(in dollars per tonne)

295
275
255
235
215
195
175
155
135
115
95
75

** Projected
Source: U.S. Department of Agriculture

tonnes, down about 5.5 million from the previous month's estimate
and down 8% from the record 2007-08 crop. The reduction stemmed
from a lower forecast yield, as dry conditions plagued much of the
Corn Belt in August.
Another major maize reduction occurred in Argentina, where the
USDA cut the projected crop to 19 million tonnes, down 14% from
August and down from 20.5 million in 2007-08. As planting approaches, the Argentine government has been rejecting maize export
registrations, the USDA noted, and high fertilizer costs will reduce use,
making maize riskier than soybeans in respect to both yields and government marketing intervention.
Global maize use in 2008-09 was forecast at a record 796.47 million tonnes, up 3% from 2007-08, which would leave ending stocks
at 109.9 million tonnes versus 123.5 million the previous season. If
realized, the ending stocks-to-use ratio would stand at 13.9%, the lowest since 1973-74's 11.8%. At those levels, the maize market will need
to "buy" enough planted area in early 2009 to assure big harvests and
WG
adequate supplies for the in 2009-10 season.
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World Grain - October 2008

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