London, 23 September 2010

Global grain prices advanced again in September, those for wheat having returned to the peaks reached in early August.

While the initial trigger for the steep upturn in wheat and barley values in recent months was the fast deteriorating outlook for these crops in the Black Sea region, much of the more recent bullishness is attributed to concerns about smaller than anticipated US maize (corn) yields, as well as substantial new grain buying activity by importers. Another feature is the difficult harvest weather in some countries, affecting milling wheat and malting barley quality.

US soybean prices partly mirrored the upturn in maize, but were also supported by concerns about South American crop prospects and continued heavy buying by China. Asian rice prices moved higher, largely because of the impact of the flood emergency in Pakistan. The recent surge in world grain prices, while not on the same scale as in 2007-08, again prompted concerns about its impact on global food prices as well as the increased volatility in the major commodity exchanges.

One measure of such volatility is the day-to-day change in futures values (such as for CME wheat – see diagram) which, even allowing for the events of three years ago, is significantly greater than earlier in the decade. Given the generally adequate supply situation for wheat and other grains, despite recent crop concerns, many have expressed surprise at the ferocity of recent market responses.

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