Cereal supply and demand

There are still significant uncertainties with regard to the post-2011 supply and demand situation. The main fac-tors are summarised as follows:
•   Globally, wheat will be in surplus relative to total grain and it would be expected that the premium for wheat over other grains will remain low.
•   It would be extremely unlikely that the global wheat supply relative to demand (as represented by the stock-to-use ratio) will return to 2007/8 levels.
•   UK wheat prices for the 2010/11 marketing year were at an all time high but they were not elsewhere. There were several reasons but the major one was exchange rate. Exchange rate is also volatile.
•   The EU stock-to-use ratio for wheat is the tightest for at least the last 50 years – indicating high internal prices (and a political decision to run down intervention stocks).
•   Import tariffs remain an important factor for retaining high prices within the EU.
•   Total grain supply and demand is far tighter than for wheat and there is a far greater chance (35 to 40%, taking into account current knowledge and that rising prices also tend to reduce consumption) that supply relative to demand might return to the lows of 2007/8 (or even 2006/7). There is no realistic chance that stock-to-use ratios will rise to the historical highs of the 1990s.
•   US maize prices are currently trading above wheat. This is almost unheard of and is simply an indication of the time taken for importers to change buying habits. While most US ethanol plants are designed to use maize, and would require investment to change to wheat, there are still substantial US maize exports of about 45M t, or 14% of their total maize production, where feed value determines price. This exportable surplus will be sufficient to lower maize price relative to wheat over time.
•   Supply and demand, as expressed by the stock-to-use ratio, is only an approximate indicator of price but a falling ratio is still a good indicator for rising prices.
•   The July 2011 USDA estimate of total grain production still looks high.