Wheat: we are inclined to fear exacerbated volatility for the 2008/2009 production spreads

The latest monthly report of the International Cereals Advisory Board (Conseil International des Céréales (CIC)) published on January 29, forecasts a severe decrease in wheat production in comparison to 2008. If the US Department of Agriculture’s forecasts are confirmed, which anticipate a record wheat production in 2008 of around 687 million tons – compared to 603 Mt produced in 2007 – it is nevertheless proposing a world crop for 2009 which falls short of that of 2008: according to the ICAB, world production would indeed reach 650 Mt only, a 5% drop compared to 2008. These forecasts are essentially due to the reduction of seeded surfaces in the key production countries of the northern hemisphere (United States, Europe, Russia and countries around the Black Sea) according to ICAB.

When compared to a stable world consumption, these variations in world production put international agricultural price volatility at risk. We mustn’t forget that in 2007/2008 a 2% spread between cereals’ offer and demand had doubled prices. On agricultural markets, past volatility feeds future volatility; therefore, we should be firmly convinced that price volatility which characterises agricultural markets will most certainly not fade away.