The Hindu Business Line : Carryover stocks of grains seen declining

The world needs more grains in 2007 in order to augment supplies and contain prices. Rising prices of major crops such as corn (maize), wheat and oilseeds, caused mainly because of large-scale diversion for bio-fuel purposes, has resulted in tightening supplies and falling inventory.

Competition

The situation is sure to lead to severe competition for acreage and area expansion for certain crops. A big increase in production could result in a recovery of stocks, as occurred in 1996-97, for example. However, due to strong level of demand, a particularly larger outturn would be required in 2007 to rebuild inventories of wheat and corn, according to the International Grains Council (IGC).

A notable rise in wheat sowings was already evident in several northern hemisphere countries; and based on an overall 4 per cent forecast expansion in the world area, the outlook was for a significant rise in wheat output in 2007, IGC said.

World grain output, especially wheat, had fallen significantly for the second successive year. In 2006-07, ending stocks would be sharply lower. While grain demand in some sectors, notably animal feed, would be reduced, industrial use continued to rise largely as a result of rapidly rising bio-fuel needs for maize and other grains.

While the aggregate closing stocks with the five major exporters was expected to fall to their lowest level since 1996-97, world trade in grains in 2006-07 has been forecast to be only modestly higher than in the previous year. This is despite unusually large milling wheat purchases by India and Brazil, IGC pointed out.

Price rise

Recent steep rises in prices of all major grains, to their highest since the mid-1990s, reflected market concerns about tightening supplies, exacerbated by sharp decline in Australian crops. Heavy speculative activity featured in the major US futures exchanges while in several countries reluctant farmers selling on rising prices had often added to short-term market supply concerns.

Oilseed prices too strengthened despite large global crops even as heavy biodiesel demand (mainly rapeseed in Europe and soyabean in the US) and overall grain market gains supported the move upwards. IGC estimated that some 68 million tonne of grains would likely be used for ethanol in 2006-07, up from 52 mt in the previous year.