Weak grain prices may be here to stay, warns EU

Weak grain prices are here to stay, potentially long-term, European Union officials said, as they forecast a further rise in the bloc's wheat inventories in 2016-17 despite weaker harvest prospects. Short term, "there are no fundamental reasons for [cereals] price levels to change," the European Commission said, citing large inventories.Grain stocks in the EU, the top wheat producer, and worldwide are "ample, and the moderate effect of El Niсo on markets is already incorporated in price expectations.

"Unless new weather events change the crop development progress, there is no reason for higher cereal prices."

Here to stay?

Indeed, farmers should be prepared longer term for prices near current levels, the commission said.

Market dynamics raise "the question on whether this is the new average price level to be expected", although more evidence will be needed to underpin such a forecast.Paris milling wheat futures for March stood at E141.50 a tonne on Tuesday, not far above the E140.25-a-tonne level reached last week which represented the lowest level since July 2010.

In July last year, the front Paris contract touched E206.75 a tonne.London feed wheat futures stood at £101.00 a tonne in morning deals, after last week hitting £99.15 a tonne - falling below £100 a tonne for the first time for a spot contract since July 2010.

Commission vs Strategie Grains

The commission comments came as officials, in their first forecasts for EU crop balance sheets in 2016-17, they forecast soft wheat inventories growing by 200,000 tonnes to a multi-year high of 17.4m tonnes.The estimate represented a sharp contrast to the hefty decline in stocks, to 13.3m tonnes, forecast by Strategie Grains, the influential analysis group.

However, the commission was far more downbeat on EU export prospects for next season, foreseeing a decline in shipments of 2.1m tonnes to 27.0m tonnes.Strategie Grains sees EU exports rising to 30.6m tonnes next season, encouraged by the prospect of weaker harvests in the former Soviet Union, a key origin for competitively-priced shipments.

'Good level of production'

Furthermore, the commission was a little more optimistic on prospects for the EU soft wheat harvest this year, forecasting it at 143.6m tonnes, a drop of 8.4m tonnes year on year, but ahead of the 142.6m-tonne result expected by Strategie Grains.

"Early forecasts for the 2016-17 harvest are showing a good level of cereal production," the commission said.

"The warmer-than-normal winter means that so far there is only limited frost kill in western Poland, eastern Bulgaria and Romania and the Baltic countries."

Price incentives

The commission was most upbeat on production prospects for durum wheat, for which it forecast a rise in output of more than 220,000 tonnes to 8.82m tonnes, and corn, for which it estimated a harvest of 67.3m tonnes, a rise of more than 9.2m tonnes year on year.

"Cereals with relatively better prices… such as corn, barley and durum wheat," are enjoying raised planting prospects, with the corn production outlook lifted by the expectation of a return in the yield above 7.0 tonnes per hectare.

Corn, as an autumn-harvested crop, last year fell prey to dry weather which arrived too late to affect significantly autumn-reaped cereals.

For rapeseed, the commission forecast a crop of 21.29m tonnes, a drop of some 80,000 tonnes year on year, although a cut in consumption of 1.4m tonnes to 23.9m tonnes will allow a small recovery in EU inventories of the oilseed next season nonetheless.

UAC Information Center by information agrimoney