International prices skyrocketed partly because the United States, the world’s largest corn producer, will only harvest a fraction of what it sowed this spring. Many of the most productive US regions in terms of corn crops have already been labeled as affected by the severe or extreme drought.
“I expect corn prices to keep rising, the US market will upset everything and it may be a second Russia (in 2010 Russia froze all grain exports as a result of extreme weather conditions, driving international prices through the roof i.e.),” says Iulian Gheorghe, general manager of Ameropa Grains, one of the top five grain traders in Romania. “Every trader in Romania has defaults (contracts unfulfilled by farmers i.e.) now, as a result of price increases.”
In May, many traders signed contracts to buy corn for EUR180 to EUR185/ton from Romanian farmers; the farmers are now reluctant to sell because prices are on the rise, Gheorghe explains.
Traders expect tensions on the market to die down with the new harvest, when the quote should be somewhere between EUR235-EUR240/ton. This is 20% to 25% than in 2011 for the same period of the year.
Usually prices go down in Romania at the time of the harvest, because farmers rush to sell to pay their debts to the banks or to fertilizer, seed or farming equipment suppliers. Agriculture contributed EUR19 billion to Romania’s economy last year, according to certain estimates.
The first signal about this summer’s corn price trend came from the US, world’s largest producer. July estimates of the United States Department of Agriculture showed that US farmers will harvest 329 million tons of corn, 12.2% less than then anticipated last month. It might be even worse than estimated early this month, though.
With the US corn harvest severely affected by the weather conditions, processors and traders will have to look to other markets if international stocks do not give them sufficient room to maneuver.
USDA forecasts show that the world’s economy will end the agricultural year with stocks of 134 million tons of corn, after indicating stocks of 155 million tons last month.
As supply is dwindling on international markets, some of the potential beneficiaries of this situation are the farmers around the Black Sea, including Romania.
Whereas the wheat crop is far lower than Russia’s or Ukraine’s, the corn crop is much closer to the production of the two agricultural giants by the Black Sea. For instance, Russia’s production should reach 7.8 million tons and Ukraine’s 24 million tons in 2012. Romania’s production is estimated at 6.5 million to 7 million tons, down from the 11.7 million tons of 2011.
Although the Black Sea region has been affected by the high temperatures of the last two months, the impact is not as severe as in the US.
(English version by Loredana Fratila-Cristescu)