Grain stocks to dip further despite record harvest

World grain stocks are set to fall again in 2011-12 despite a record harvest, as increased feed and food consumption more than account for increased production, the International Grains Council said.

The influential intergovernmental group, in its first grains forecast for the forthcoming season, estimated grains output jumping 4.6% to an all-time high of 1.805bn tonnes.

"The biggest increases are forecast for Russia, the US and the European Union, with sizeable gains also expected in Canada, Kazakhstan and Ukraine," the council said.

However, even this estimate, which assumed a 4% rise in sowings to a 13-year high of 537m hectares, would be insufficient to restore production above demand.

World consumption of grains - defined as wheat and coarse grains including corn – will rise by 1.1% to 1.808bn tonnes.

'Continued tightness'

"The first comprehensive analysis covering all grains points to continued tightness in the global market unless output exceeds current projections," the IGC said.

"A significant upturn will be required in production in 2011-12 to prevent another fall in end-of-season inventories."

Their analysis implies stocks falling to a four-year low of 338m tonnes in 2011-12, and a stocks-to-use ratio – a key measure of the readiness of supplies, and therefore of price potential – of 18.7%, down 0.4 points, albeit still looser than in 2006-07 and 2007-08, whose tightness spurred the previous rally in grain prices.

Ethanol use curbed

The IGC's forecast of a further tightening in inventories echoed comments from fertilizer group PotashCorp made hours before, and came despite a 1m-tonne upgrade to the council's forecast for world wheat production, taking the estimate to 673m tonnes.

In the council's first estimate for 2011-12 corn production, the world harvest was pegged at 841m tonnes, a rise of 4.1% on this season's result.

However, increases were also forecast both food and feed use of grains, if not for industrial use of corn.

"Continued tight [corn] supplies and resultant strength in prices will likely restrict growth in industrial use, particularly in the fuel ethanol sector," the IGC said.

"After several years of strong growth, industrial use of [corn] is expected to level off, with starch use a little higher, but an easing in the US ethanol sector is likely."