As the US is the largest exporter of wheat and the largest producer and exporter of feed grains, the US market is the most sensitive barometer of world grain market conditions. The dominance of the US market is formally recognized by its use for setting European Union import tariffs, although, with the re emergence of Black Sea ports as a source of grain for international markets after nearly 100 years, this situation may be changing.

The US market can at times appear a little parochial with weather conditions in Chicago, rather than the major grain growing areas of the US and elsewhere, seeming to preoccupy the local trade. Such diversions are, however, usually short lived.

The Chicago Board of Trade December futures contracts for corn and wheat are the bell whethers for new season crop prospects. By December US crops are harvested and markets reflect new season supply situations.

During the summer months when crop prospects are uncertain, US prices are seasonally volatility and a weather market "risk premium" often develops when weather forecasts appear to threatened crop developments. This is particularly the case for the maize market as close to half of world coarse grain production and rather more than half of world trade is grown in a relatively small region which is, as often as not, influenced by a single weather system.

Last year was typical in this respect. In response to weather forecasts of an extended dry and hot period during July, which would have adversely affected crop prospects during the critical silking, seed fertilization, period, maize prices not only increased and but were more volatile than earlier in the season(Graph 1).

Wheat

Wheat prices drifted lower during the spring despite a widening drought situation across most of the winter wheat producing Western Plains. But since early June prices have risen increasingly rapidly with about 50 percent being added to wheat values in the process(Chart 2). Initially this was perhaps the result of the realization that it was too late for rain to provide any relief. But during July the deterioration of the US maize crop and the US spring and Canadian wheat crops maintained the momentum of the market with, more recently, unfavourable early Australian crop prospects adding to concerns.

Maize

Maize prices have since the third week of June risen rather erratically by about 25 percent(Graph 2). It was at that time that, having improved during June, US corn crop condition began to deteriorate. During July it was a classic weather market with each successive weather forecast and report influencing prices one way or the other, but mostly higher as the crop sustained irreversible damage. Since then the weather has cooled, and rain has prevented further damage with prices now seeming to be moving sideways in a rather erratic manner.

The 30 million tonne cut in US maize production prospects in little over a month was dramatic in absolute terms and has created a projected global coarse grain supply/demand balance, in a historic context, as tight as that for wheat. The impact of this, however, has and may continue to be rather less than that of the wider influences on the wheat market. It is further evident that feed grain supplies are likely to be more easily rationed by price than wheat, particularly as uncertain global economic conditions may have a material impact on meat consumption upon which feed grain demand depends.

Soybeans

Soybean price increases have been more modest than those for wheat or corn, and limited to about 20 percent. While grown in the same region as corn and, therefore, subject to the same weather, the critical period for beans is August during pod filing by which time more broken weather had developed. It is also very evident that the dominant position of the US in world markets has been eroded over the last decade by the growth in exports from Brazil and Argentina.

David Walker
phone: 01603 705153