Global grain prices are likely to come under downward pressure in the second quarter due to a rise in output in major growing and exporting countries and ample stock levels, a senior economist said.

"If weather doesn't spring any surprises, current supply situation shows it is quite possible that prices will decline much lower than current levels," Abdolreza Abbassian, a senior economist with the United Nations' Food and Agriculture Organization, told Dow Jones Newswires.

The most active wheat, corn and soybean futures on the Chicago Board of Trade are currently trading around $6.5, $6.6 and $13.3/bushel, respectively, much lower than the 2011 highs of $8.9325, $7.9975 and $14.55 a bushel.

"The price highs of last year are certainly not on the cards at the moment and the outlook is not worrisome from the global perspective," Abbassian said. He said global wheat output hit a record high of 700 million metric tons in 2011 and according to FAO's first forecast for 2012, production may fall by 1.4% this year, assuming a return to average yields where record highs were achieved last year.

Even after accounting for this decline, there are large global inventories to take care of import demand, he noted.

Wheat stocks-to-use ratio in FAO's aggregate 2011-12 marketing year is forecast at 32.4%, well above the 10-year average. Abbassian said that last year there was a large demand for wheat use as animal feed due to high corn prices but pressure is likely to ease this year as corn output is expected to rebound. He said the U.S., the world's biggest corn exporter, is heading for a record acreage of corn, which will boost output if the weather is supportive.

He said even the dry weather in South America that has hurt corn and soybean output will send a positive price signal to growers in the U.S. who will be encouraged to expand spring plantings from next month.

He also cited the example of Ukraine, saying growers there may opt to grow more corn in the spring season on expectations of higher export demand due to a lower crop in South America, he said.

The sharp rise in Ukraine's corn exports and output is cited by analysts as the single most important factor in keeping a check on global prices in the past six months.

Ukraine's corn exports are expected to more than double to 14 million tons in the 2011-12 aggregate marketing year of the U.S. Department of Agriculture.

-By Sameer Mohindru, Dow Jones Newswires; +65-9455-2449; sameer.mohindru@dowjones.com
(END) Dow Jones Newswires
March 12, 2012 18:25 ET (22:25 GMT)
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