Coarse grains

Henry To

The world coarse grain indicator price (US corn, fob Gulf) is forecast to increase in 2009-10, driven largely by continued strong demand for corn in the production of ethanol. The world coarse grain indicator price is forecast to increase by US$5 in 2009-10 to average US$182 a tonne.

Despite the forecast increase in world prices, Australian feed and malting barley prices are forecast to fall in 2009-10 as higher domestic production places downward pressure on prices. Australian feed barley prices are forecast to fall by 4 per cent to average A$194 a tonne, while malting barley is forecast to average A$232 a tonne in 2009-10 which is a slight decrease from 2008-09. These prices are the lowest since the 2005-06 season.

World production to decrease but supplies unchanged

World coarse grains production in 2009-10 is forecast to fall slightly to around 1.07 billion tonnes from last season’s record 1.1 billion tonnes. World corn and barley production are each forecast to fall by 9 million tonnes in 2009-10. While lower global production is forecast, higher opening season stocks are expected to result in global coarse grains supplies in 2009-10 being largely unchanged from 2008-09.

In the United States, corn is the major coarse grain produced, accounting for 95 per cent of total US coarse grain production. The area planted to corn is forecast to fall by 1 per cent in 2009-10 because of an expected increase in plantings for soybean production. Corn production in the United States is forecast to decline to 303 million tonnes in 2009-10, compared with 307 million tonnes in 2008-09.

In China, planting of corn traditionally takes place in April and May. The area sown to corn is estimated to have increased slightly to 29.5 million hectares for the 2009-10 season as farmers have moved away from soybean production. Larger oilseeds stocks in China have put downward pressure on domestic oilseed prices, making the returns for corn relatively favourable. Despite the higher planting area in 2009-10, the effect on corn production is likely to be more than offset by an expected decline in yields. Corn yields in China rose markedly in 2008-09 to a record of 5.63 tonnes a hectare, significantly higher than the average of 5.31 tonnes a hectare over the past five years. Corn production in China is forecast to be around 161 million tonnes in 2009-10, around 5 million tonnes less than 2008-09.

In the European Union, the area planted to coarse grains is forecast to be 3 per cent lower in 2009-10 than in the previous season. Lower corn and barley prices, and relatively high farm input costs are likely to result in the area planted to corn and barley being switched into the production of oilseeds (mainly canola/rapeseed) which is relatively cheaper to plant. A lower area planted to corn and barley in 2009-10, combined with an expected decline in yields, is forecast to result in EU corn and barley production being 9 per cent and 4 per cent lower, respectively, than the previous year.

Throughout parts of Argentina and Brazil, severe drought was experienced in the 2008-09 season resulting in significantly lower yields than historical averages. In 2009-10, yields are forecast to improve, assuming favourable growing conditions. Corn production in Argentina is forecast to increase by 2 million tonnes to be 15 million tonnes in 2009-10. In Brazil, corn production is forecast to be 54 million tonnes in 2009-10, up from 51 million tonnes in 2008-09.

World barley production is forecast to fall by 9 million tonnes in 2009-10 to be 145 million tonnes. The majority of the forecast decline is expected to be in the Russian Federation and the Ukraine. Yields in these two countries in 2008-09 were around 30 per cent higher than the five year averages.

Barley prices in the Russian Federation have fallen significantly throughout 2008-09 because of an increase in supplies. At the beginning of the 2009-10 season, Russian domestic barley stocks were around 4.8 million tonnes, compared with 736 000 tonnes at the start of the 2008-09 season. The lower domestic prices are expected to lead to lower area planted to barley in 2009-10. Assuming a return to average yields in the Russian Federation, barley production is forecast to fall by 31 per cent to be around 16 million tonnes in 2009-10.

Barley production in the Ukraine is forecast to decline by 25 per cent to be 9.5 million tonnes in 2009-10. Despite a forecast increase of 8 per cent in area planted to barley, yields are expected to be significantly lower as the authorities in the Ukraine have reduced support for farm inputs (machinery and capital). There have also been reports of some farmers experiencing difficulties obtaining credit in the Ukraine.

In Canada, coarse grains production is forecast to decline by 8 per cent to 25 million tonnes in 2009-10. Barley production is forecast to fall 9 per cent to 10.7 million tonnes because of forecast lower yields and area sown to barley. Corn production is forecast to be 10.3 million tonnes in 2009-10, compared with a harvest of 10.6 million tonnes in 2008-09.

Consumption at record highs

World coarse grain consumption is forecast to increase by 14 million tonnes to a record 1.09 billion tonnes in 2009-10. If this is achieved, it will be the fourth consecutive year that global consumption has exceeded 1 billion tonnes. The recent significant increase in coarse grain consumption has been largely driven by strong growth in demand for corn in ethanol production. Feed use of coarse grains is forecast to remain largely unchanged in 2009-10.

Ethanol driving the record coarse grains consumption

Industrial use of coarse grains (primarily for ethanol production) is forecast to increase to a record 442 million tonnes in 2009-10, a 14 million tonne increase on the previous year.

The United States is the largest consumer of coarse grains for industrial use. Consumption of corn for ethanol production in the United States was around 16 million tonnes in 2000-01, but has increased markedly in the past few years, reaching 95 million tonnes in 2008-09. In 2009-10, the use of corn in ethanol production in the United States is forecast to increase by a further 9 million tonnes to be 104 million tonnes, accounting for 34 per cent of total corn use. This compares with 31 per cent in 2008-09 and 23 per cent in 2007-08.

At the end of January 2009, the US ethanol industry had a production capacity of 47.8 billion litres, with an estimated 7 billion litres of additional capacity under construction. The rapid expansion of the ethanol industry has been the result of the US Government’s policies. Under the Energy Independence and Security Act of 2007 (EISA), mandated use of biofuels in transport will be around 11.1 billion gallons (or 42 billion litres) in 2009, before rising to 12.95 billion gallons (49 billion litres) in 2010.

Feed use to remain largely unchanged

The use of coarse grains for livestock feed is forecast to be 645 million tonnes in 2009-10, largely unchanged from the previous year. Increases in feed use are forecast in China, the Middle East and northern Africa, while reduced feed use is expected in the United States and the European Union.

In the United States, the use of corn in the livestock industry is forecast to fall to around 133 million tonnes in 2009-10, the lowest level since 1996-97. The economic contraction in that country is likely to result in a reduction in meat consumption, which is expected to lower the feed demand for corn. Another factor contributing to the expected reduction in feed demand for corn is the increased supply of distillers grains (a by-product from the production of ethanol). This increase is expected to reduce the use of corn in feeding rations.

The use of coarse grains for feed is forecast to increase in China, albeit at a slower pace than in the past few years because of the assumed easing of income growth and expected weaker growth in demand for livestock products. Feed use of coarse grains in China is forecast to increase by 1 per cent to 112 million tonnes in 2009-10, compared with average growth of 2.3 per cent over the past five years.

In the European Union the consumption of coarse grains in the livestock sector is forecast to fall by 2 per cent to 110 million tonnes in 2009-10. Despite an overall decline in feed use, the share of corn use in feed is forecast to increase at the expense of feed wheat as the availability of low-quality feed wheat is expected to decline. Total feed grain use (including wheat) in the European Union is forecast to decline by 2 per cent to 170 million tonnes in 2009-10.

International coarse grain trade to increase

World coarse grain trade is forecast to be 106 million tonnes in 2009-10, up from 102 million tonnes in 2008-09. World corn trade is forecast to increase by 3 million tonnes in 2009-10 to be around 80 million tonnes. However, international trade for barley is expected to decline in 2009-10.

Corn exports from the United States are forecast to increase by 4 million tonnes to 48 million tonnes in 2009-10. Canada, Mexico, Malaysia and the Republic of Korea are each forecast to increase their corn imports by around 500 000 tonnes in the year, in response to shortfalls in their domestic supplies.

World barley trade in 2009-10 is forecast to decline by 1.8 million tonnes to 16.6 million tonnes. Exportable supplies from the Russian Federation and the Ukraine are forecast to decline in 2009-10, while import requirements are also forecast to be lower in some key markets. Import demand from the Middle East and northern Africa is forecast to decline in response to increases in their domestic supplies. The Russian Federation and the Ukraine are the largest suppliers of barley to the Middle East and northern Africa.

Stocks to fall in 2009-10

Ending season coarse grain stocks are estimated to be around 186 million tonnes in 2008-09, the highest since 2001-02. In 2009-10, global stocks are forecast to be around 173 million tonnes, a 7 per cent decline on the previous year. While barley stocks are forecast to increase by around 1.8 million tonnes, world corn stocks are expected to decline by around 9 million tonnes in 2009-10.

The majority of the forecast increase in world barley stocks is expected to occur in the European Union, with an increase of 2.7 million tonnes for the region to around 13 million tonnes in 2009-10. For the Russian Federation and the Ukraine, barley stocks are forecast to decline by a total of 2.6 million tonnes to be around 3 million tonnes by the end of the 2009-10 season.

Corn stocks in the United States are forecast to fall by 11 million tonnes in 2009-10, while China’s corn stocks are expected to rise by 4 million tonnes to 57 million tonnes. The Chinese Government has been purchasing corn to support farm-gate prices.

Australian winter coarse grains production to increase in 2009-10

The area sown to barley is forecast to fall slightly to 4.5 million hectares in 2009-10. Barley yields in Australia are forecast to increase to 1.73 tonnes per hectare in 2009-10 from 1.51 tonnes per hectare in 2008-09. Barley production is forecast to increase by 13 per cent to 7.7 million tonnes in 2009-10, the highest since 2004-05.

Recently harvested 2008-09 grain sorghum crops are estimated to be 2.3 million tonnes, compared with the record 3.1 million tonnes in 2007-08. However, the 2008-09 harvest is the second highest on record. The area planted to grain sorghum fell by 15 per cent in 2008-09, which was the result of lower grain prices and the reduced availability of fallow land.

Trade to increase in 2009-10

Total coarse grain exports are forecast to increase by 0.5 per cent to 5.6 million tonnes in 2009-10, driven by a forecast increase in barley production. The value of Australian coarse grains exports is forecast to increase to A$2.2 billion in 2009-10 from the A$1.9 billion in the previous year. The increase in export volumes is forecast to outweigh a forecast decline in barley and sorghum prices in 2009-10.

Coarse grains outlook
			2007-08	2008-09	s	2009-10	f	% change
World
Production		Mt	1 076	1 098		1 074		– 2.2
– barley		Mt	133	154		145		– 5.8
– corn		Mt	792	788		779		– 1.1
Consumption		Mt	1 056	1 073		1 087		1.3
Trade		Mt	127	102		106		3.9
Closing stocks		Mt	160	186		173		– 7.0
US corn price		US$/t	218	177		182		2.8
(fob Gulf, Sept–Aug)
Australia
Area		’000 ha	7 413	6 563		6 529		– 0.5
– barley		’000 ha	4 902	4 506		4 469		– 0.8
– sorghum		’000 ha	845	717		728		1.5
Production		kt	12 571	11 277		11 917		5.7
– barley		kt	7 159	6 820		7 713		13.1
– sorghum		kt	3 072	2 319		1 941		– 16.3
Exports		kt	4 428	5 578		5 607		0.5
– value		A$m	1 620	1 915		2 152		12.4
Feed barley price		A$/t	308	202		194		– 4.0
Malting barley price		A$/t	350	233		232		– 0.4