Grain importers told to prepare for worst

by Shinya Ajima

Kyodo News

With grain markets growing increasingly tight amid declining crops in major exporting countries, import-dependent countries like Japan need a firm grasp of market trends and must brace themselves for the worst, according to the head of an intergovernmental market watcher.

While pointing out there is no immediate threat to the global balance of supply and demand, Etsuo Kitahara, director general of the London-based International Grains Council, warned that grain importers must carefully study scenarios in which they could suffer a suspension in imports.

“The concern is that grain stocks have been at historically low levels in each country,” Kitahara, a former bureaucrat with the Agriculture, Forestry and Fisheries Ministry, said in a recent interview in Tokyo.

“Now is the time when (importing) countries should check their stock levels and even take into consideration a possible halt in imports,” said the chief of the IGC, which monitors grain trading and provides market information to its 25 member countries and the European Union.

Given a combination of strong sales, declining stocks and deteriorating prospects for crop yields in key exporting countries, world export prices of the three key grains of wheat, corn and soybeans have been climbing to record highs, Kitahara said.

Wheat prices have more than doubled in the past year and hit a record high of over $9.60 a bushel Sept. 28.

Lowered estimates for crop yields for 2007 by Australia, one of the world’s major wheat exporters, due to drought, as well as unprecedented high freight rates due to increasing demand from China to export its iron ore and coal, have added to the price rises.

Citing scant expansion in farmland around the world and growing populations combined with a surge in demand for grain, Kitahara said, “No factors that might help push prices lower can be seen.”

Higher buying costs have forced some importing countries to reduce or remove tariffs to try to fend off upside pressures on domestic distribution prices.

The possibility of export controls by major grain producers, including the United States, may further strain the already complex situation, Kitahara added.

However, he holds on to the hope that even amid tightening market conditions, “self-adjustment” is possible.