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CO L U M N
THYS GROBBELAAR
GRAIN MARKET PROSPECTS:
March 2016: Market developments
BACKGROUND
International and
fundamental factors:
World economic conditions, or
expected conditions, play a significant role in the price forming
of various commodities such as
energy, metals and soft commodities such as grain and oilseeds. We
can still remember the dramatic
increase in commodity prices in
2007 and 2008. The GDP growth
rate of China was in the region of
16% and it was projected that it
could increase to 20% within five
years. There was concern that the
world would not have sufficient
energy, metals and food to meet
the enormous projected demand.
This supported most commodities, until the financial crisis of
2009, which resulted in a dramatic
decline in commodity prices.
The world economy improved
somewhat, but has declined again
to the level where it is at present.
The world economic growth rate
in terms of GDP is just above 3%.
Expectations are that it could recover to 4%. At this stage the slow
Graph 1. World economic growth in terms of Gross Production Value (IMF).
Graph 2. Carry-over stock levels as a percentage of consumption of the most
important crops in the world.
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Apr/May 2016 • SENWES Scenario
economic growth rate is putting a
damper on commodity prices such
as grain and oilseeds.
International grain and
oilseed situation:
Due to various factors the world
carry-over stock levels of the most
important grains and oilseeds
increased fairly rapidly percentage-wise over the past four years.
One reason is the slowing down
of the world economy. The larger
production countries experienced
good conditions over the past few
years and the production ability of
most crops improved significantly
because of the progress being made
in respect of genetics. As the carryover levels of a commodity are
higher than 15% of consumption,
it places a damper on the price. It
is therefore not necessary to hold
on to stock because, according to
the market, there is adequate stock
of the specific commodity available
in the world. This is exactly what
is happening now - the world carry-over stock levels of maize, soya
beans and wheat as a percentage of
consumption are all above 15%.
Graph 2 illustrates carry-over
stock levels as a percentage of
world consumption.
The three crops discussed have
been following the same price
trend recently. Maize and wheat
prices have been moving sideways
over the past 15 months. The soya
bean price started a downward
trend at a later stage, but moving
sideways at the moment. Unless
a severe drought is experienced
in America next year, maize and