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Grain prices to fall despite tighter supplies - UN

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The United Nations, cutting 15m tonnes from its forecast for the world wheat harvest, warned that world cereal supplies are set to tighten in 2012-13 – but not by enough to prevent drops in grain prices.

The UN's food agency, the Food and Agriculture Organization (FAO), sliced its estimate for world wheat production in the forthcoming season to 675.1m tonnes – a drop of 25m tonnes year on year - citing the impact of cold weather on winter crops in Europe and Ukraine.

"Persisting drought also slashed prospects in Morocco, while the outlook for spring crop planting in Central Asia", an area which includes Kazakhstan, "worsened due to prolonged dryness," the FAO said.

Prospects for the world coarse grains harvest look better thanks to the "anticipated sharp rise in [corn] plantings in the US", where seedings are expected to hit their highest in 75 years.

World coarse grains output in 2012-13 will soar 43.4m tonnes to 1.21bn tonnes.

Tighter inventories

Nonetheless, the impact on overall cereals supplies of the rising harvest of coarse grains, which also include barley and sorghum, will be limited by rising consumption.

Indeed, on a stocks-to-use basis, cereals stocks will end 2012-13 at 21.7% of use, down 0.2 points on 2011-12.

The stocks-to-use ratio is a key pricing metric, with a lower value typically expected to support higher prices.

'Prices are likely to average lower'

However, the better balance of supplies next season between wheat, which has been in ample supply, and coarse grains, which have been at historically tight levels, looks set to see prices weaken nonetheless.

UN FAO forecasts for world cereals, 2012-13 and (year-on-year change)Production: 2.37bn tonnes, (+1.1%)Trade: 295.5m tonnes, (+0.8%)Food use: 1.085bn tonnes, (+1.1%)Feed use: 806.6m tonnes, (+2.1%)Total use (includes others): 2.357bn tonnes, (+1.4%)Year-end stocks: 524.0m tonnes, (+1.7%)Stocks-to-use ratio: 21.7%, (-0.2 points)

"Barring any major unexpected supply shocks, international prices are likely to average lower than in 2011-12."

In corn, the FAO, noting that market were already "anticipating a rebound in supply after major 2012 harvests are complete", also flagged weaker values ahead.

"Although prices will be influenced by weather conditions during critical periods of the growing season, especially in July when pollination is required [in the key US crop], the trend in December [futures] values underscores the possibility of a decline in prices."

'Much more rain needed'

The FAO's forecasts included an estimate of 345m tonnes, or 13.6bn bushels, for the US corn crop, a record, but a figure nonetheless below estimates above 14bn bushels many other analysts are factoring in.

UN FAO forecasts for world wheat, 2012-13 and (year-on-year change)Production: 675.1m tonnes, (-3.6%)Trade: 135.0m tonnes, (-1.7%)Food use: 475.5m tonnes, (+0.4%)Feed use: 133.8m tonnes, (-3.7%)Total use (includes others): 686.5m tonnes, (-0.6%)Year-end stocks: 182.7m tonnes, (-6.5%)Stocks-to-use ratio: 26.3%, (-2.1 points)

The Chinese corn crop, the world's second biggest, was pegged at 190m tonnes, in line with last year's.

"Even assuming yields return to average levels after last year's highs, this could be largely offset by an increase in area, as farmers are expected to plant more corn in response to firm price prospects."

In wheat, the FAO pegged the European Union harvest, the world's biggest, at 135m tonnes, in line with estimates from other commentators last month, warning that recent rains had not been enough to rescue crops in all areas.

"In the driest areas, much more rain will be needed during the growing season to avoid significant loss of yield potential."


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