The Hindu Business Line : Corn prices seen gaining on continuing demand

Chennai, July 18 Continued strong demand for coarse grains, especially corn as feedstock for ethanol production, is likely to cast upward pressure on global coarse grain prices during 2008-09 (September-August).

As a result, corn prices are forecast to increase by $11 a tonne to an average $225 a tonne f.o.b Gulf, according to Abare, Australia’s independent agriculture and research economics agency.

Production

Global coarse grain production is likely to be around 1.1 billion tonnes in 2008-09, though corn production is forecast to decline 15 million tonnes (mt) to 775 mt. Corn accounts for over 70 per cent of the world coarse grain production.

The decline in corn production would be offset by an eight mt increase in barley production, the second major coarse grain. Barely production is projected at 142 mt during 2008-09.

The area under corn in the US is forecast to decline seven per cent during 2008-09 to 41 million hectares. Despite the decline, it will still be the largest area covered under corn in the US.

Returns from soya

“While the prices of both corn and soyabean have increased over the past year, the expected returns from soyabean relative to corn have resulted in some shift of the US arable land back into the soyabean production,” Abare said, adding that the US corn production was likely to decline seven per cent to 308 mt.

If the mid-June flooding in Iowa had caused significant damage, US corn production could be lower than forecast.

In China, the area under corn is likely to decrease marginally around 28 million hectares, reflecting high corn prices and strong domestic demand. Chinese production is forecast to be 150 mt, 3 per cent more than the current year.

Harvest of corn was nearing in Brazil and Argentina, and record production was expected in both countries.

High corn prices are estimated to result in area sown under corn in Brazil increasing by three per cent during 2008-09. It could be a record 15 million hectares, while production was likely to be 55 mt compared with the 10-year average of 45 mt, Abare said.

In Argentina, area under corn is forecast to increase to 3.1 million hectares and production is estimated to be 23.5 mt.

Global barley production is forecast to increase with area under the crop in the European Union likely to go up by three per cent due to improvement in weather conditions. Production in the European Union could increase two mt.

In the Russian federation, barley production could increase nine per cent mainly on yields returning closer to historical average, Abare said.

In Canada, corn and barley production could drop as the area under these crops has declined with growers switching over to wheat and oilseeds.

Consumption of global coarse grains is likely to remain constant at 1.1 billion tonnes. Though demand for livestock feed is projected to fall, it could be offset by rise in demand for industrial purposes, such as ethanol production.

Coarse grains consumption in the US is forecast to increase five mt on growing demand for corn in ethanol production, while use of coarse grains for livestock feed is forecast to fall by 13 per cent.

distillers grains

Abare said availability of distillers grains, a by-production from ethanol production, would replace a proportion of corn in feed rations.

However, their use was still in the developmental stage and significant research is being undertaken to determine its suitability for different animals.

As consumption is forecast to rise, end season or carryover stocks could be at the lowest since the 1970s at 131 mt.

Global trade in coarse grains is likely to decline by five per cent in view of drop in US corn exports.