Grain has joined the global rally, with soya beans and wheat hitting two-month highs around $5.60 and over $10 a bushel respectively this week. The increase is underpinned by a recovery in risk appetite, along with the news that, according to the US Department of Agriculture, 2009 plantings of the eight biggest grains could fall by the largest amount in 20 years.
But how much further can grain go? The supply squeeze of the past few years appears to have eased: the International Grains Council points to a record world grain harvest in the 12 months to June 2009, while the subsequent year’s 3.4% drop in production will be cushioned by rising reserves, notes Bloomberg.com.
We “haven’t seen the end of demand destruction”, reckons Dan Basse of AgResource. Grain demand has slowed due to slumping livestock production (reducing the need for feed as consumer demand for meat has ebbed) and a collapse in the ethanol industry.
As far as soya beans are concerned, demand is expected to fall by 6% year-on-year this season; this will cap the upside potential resulting from a possible 10% slide in Argentinian production owing to poor weather, says Standard Chartered. It expects prices in the third quarter to hover around current levels.