Grain traders expect new bull market

Grain traders expect new bull market
by Erena Mccaw	18/12/2008
World grain traders are predicting a new bull run as the fundamentals of supply and demand return to market sentiment. Bumper harvests in the EU, US and Black Sea regions triggered a collapse in world prices, almost halving Chicago futures in the space of two months. The situation was exacerbated by speculators and hedge-fund managers bailing out of commodities when the credit crunch hit. UK Farmers Weekly economics and world editor Philip Clark says the overwhelming message from November’s Global Grain 2008 conference in Geneva is that better times are ahead. Reporting on the conference on the publication’s website, Clark says many of the 500 traders, analysts and brokers attending the conference expressed surprise at the extent of this year’s market collapse. There was a ‘dash for cash’ as bank funding dried up and investors sold off commodities in a desperate bid to improve liquidity. This activity appears to have run its course, says Clark, and supply and demand are expected to set the tone for 2009. Southern hemisphere harvest yields are expected to be down because of drought. In the Northern hemisphere, plantings are significantly lower due to a combination of a difficult planting season and farmers’ response to the cost/price squeeze. Ukraine’s wheat area is believed to be down 10%. Chicago-based analyst AgResource predicts wheat production down 5% in 2009. The organisation is concerned that despite 2008’s bumper harvest, world grain stocks increased by only 11 million tonnes, not the expected 60mt. It also predicts a 20–30mt drop in 2009 world grain stocks, putting real pressure on the market. The conference view was that upward trends in consumption in countries like China and India will continue, despite worldwide recession. These countries are no longer achieving double-figure growth in gross domestic product but their economies and populations are still expanding. Having tasted the Western diet they are unwilling to revert to traditional diets which means demand for meat and livestock products is growing and with it demand for feed grains, says Clark. In the United States and European Union government policy is expected to ensure continued strong demand for wheat and corn to be made into renewable fuel. ‘Grain prices will start to firm in the New Year once traders stop worrying about the bumper harvest of 2008 and start looking at market fundamentals for 2009.’www.gatewaytosouthamerica.com