Inside Grains and Raw Material
Will the grain price rise come to an end?
Grain prices have been on the rise again for a few weeks. Prices have stabilized in recent days, but they remain at a high level. And that while the prospects for the new harvest look good as far as can be estimated now. So why has the market risen so much?
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Choose the subscription that suits youIn Europe, winter grains have emerged from the winter well and the JRC institute of the European Commission expects an above-average grain harvest in Europe. In the US, wheat appears to be off to a slower start due to drought in key growing areas, but the starting situation for corn and soy is good. According to the USDA, sowing corn and soy in the US is ahead of what is usual.
Rain rise
The US Corn Belt has seen some rain this past week and more precipitation is forecast over the next 14 days. It is on the cold side in the corn belt, but with the already fallen and expected precipitation, the season is off to a good start, especially in the south, say analysts. Based on the start and expectations for the current season, the high raw material prices cannot be explained.
One of the reasons that the prices of corn and soy in particular have risen in recent weeks is that there are concerns about whether the current stock is sufficient to bridge the period until the new harvest. But that is not everything. According to some analysts, there are relatively many speculators active on the market. According to some analysts, they have, as it were, created a shortage and thus strengthened the bullish momentum.
What will speculators do?
This is also an important risk in the current market according to various analysts. If speculators decide to take their profits - which is certainly not unthinkable given the current high prices - the upward momentum on the grain markets could also quickly pass.
What is also striking is that the oil price has risen in recent months, but has not (yet) risen above $70 per barrel. In other years with high grain prices (such as 2008, 2010 and 2012), the oil price was well above $70 and often even above $100 per barrel.
Especially in the case of corn, bio-ethanol has created a strong relationship between the two raw materials. Some experts expect that the skewed relationship between oil and corn prices will cause ethanol producers to shut down their factories due to small or negative margins, provided the oil price does not pick up. The supply of corn will therefore increase, which can also have a downward effect on prices.