Most grain growers will be aware of the pressure on prices since last harvest. The value put on grain then has seen price fall from around €230/t for wheat and barley to roughly €205/t for wheat in store today and closer to €175/t for barley. In average terms, this is a €25/t drop in wheat and a €55/t drop in barley.

The price drop made growers and merchants reluctant to sell but now the need to sell has become a more urgent issue as imported maize has displaced native grain usage in rations. The consequence is a potential carryover of up on 100,000t into next harvest, possibly generating storage issues in places.

The price pressure being generated by the need to sell against maize is being added to by the growing expectations of an even bigger global harvest this autumn. The International Grains Council (IGC) increased its projected 2019 harvest output from 2,175m tonnes at the end of March to 2,178m tonnes at the end of April. This compares with a 2,128m tonne harvest currently estimated for 2018/19.

Three main factors account for the increased harvest output expectations:

1 Higher than expected output from the south American maize harvest currently under way.

2 An increased area planted to higher-yielding winter cereals in many parts of the world.

3 Higher average yield expectations, for the time being at least.

The makeup of these output projections vary for different parts of the world and for the individual cereal crops. The general picture can be seen in Table 1 for the IGC forecasts at the end of April.

This report shows 50m tonnes (Mt) more production than last harvest. This is partly arising from increased production in central Europe and other regions, but it is also interesting to note from Table 1 that production is not meeting consumption and a further draw down on stocks is inevitable if this situation comes to pass.

Production of maize and wheat

Maize and wheat account for the vast bulk of grain production, at 1,887Mt of the projected 2,175Mt output. Production and estimated levels in recent years are shown in Figure 1. While the projected output for 2019 is still not as big currently as for 2016/17 marketing year, it still looks set to be another massive harvest globally.

Consumption of maize and wheat

The equivalent estimates and projections for consumption of each of the main cereals is shown in Figure 2. This shows that wheat consumption is only trending slightly upwards while maize is on a definite upwards slope. This reinforces that fact that maize is continuing to win demand in feed rations globally, just as it has displaced both wheat and barley here.

Production v consumption

The balance of production and consumption is shown in Figure 3. On the face of it, that would appear to offer an element of hope in the market but the magnitude of stock levels coming into this harvest (604Mt) will continue to alleviate any fears of scarcity that might drive prices.

However, if production was to be hit by a reduction in the area planted due to adverse weather or if yield of maize in particular was to be hit by a significant weather event the market could become less bearish as so much of existing stocks are now being held in countries which will not export, such as China, India etc.

Impact of supply balance

According to these IGC projections, the pace of growth in consumption, if it materialises, will mean that there will be a further draw down in international stock levels in the coming marketing year. However, this draw down will not be equal across maize and wheat as wheat consumption is likely to be less than production this coming season to give a further increase in global wheat stocks while maize stocks continue seem set to decrease. Figure 4 shows the excess of production over consumption for maize versus wheat. This shows that wheat production was above consumption in two of the last three years and is projected to be greater again in 2019.

Maize, on the other hand, has seen consumption exceed demand in two of the past three years and this situation is expected to be even more dramatic for the coming season based on these IGC projection. This means that maize stocks may decline further next season if the projected demand continues to grow.

Many other factors

While supply and demand ultimately control any market, many other factors can also have an impact. The uncertainty in trade arrangements between China and other countries, such as the US and Canada, has brought additional unpredictability to markets in recent years.

These, plus the unpredictability of weather, have made all markets nervous in recent times. However, the massive genetic progress evident in maize over the past decade or more appears to have increased the robustness of this crop to moderate weather events and this, plus area increases, have aided global maize production over the past two decades.

That said, weather will ultimately influence production level and this will still be the major impact on price sentiment. But a hit on maize production could act to pull up maize prices to make it less competitive in the year ahead.