Good weather means bad news for grain prices

published 18 September 2009

Even the "slightest hint of weather issues" can give grain markets a quick lift, says Lee Lovell of Investmentu.com. But this year there hasn't been any sort of hint of unruly weather hampering harvests, and prices have fallen on the prospect of rising supplies. US wheat and corn futures have slid to two-and-a-half and two-year lows respectively, while soybeans, where supply has been tighter, are back down to July levels.

The US Department of Agriculture is expecting the second-biggest American corn crop and the biggest soybean crop on record, while on the wheat front production is set to rise in all four major exporting countries. The world is "awash in wheat", says Tom Polansek in Barron's. Demand has fallen back amid the global recession and world stockpiles are now expected to reach 187 million tonnes, an eight-year high.

In short, there are "few reasons to expect a rally in global wheat prices in 2009 and well into 2010", says Wayne Gordon of Rabobank. Nor do the other two grains look set to bubble up again soon. Soybeans could well come under further pressure now that South America intends to ramp up supply and China has suggested it is unlikely to buy as many American soybeans as last year now that they have stocked up, according to Agweb.com. Agweekly.com reckons soybean futures could fall from $9 to $8 a bushel; the corn outlook is also "bearish" in the next few months.