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Tight Supplies, High Prices Expected until Prices Ease

25 February 2013

CANADA - A weather and crop specialist with CWB predicts continued tight global availability of grain and high prices before prices start to ease in anticipation of this year's harvest.

Drought that hit the US last summer and reduced wheat production in the Black Sea region and Australia have tightened the global availability of grains.

Bruce Burnett, a weather and crop specialist with CWB, says basis levels in the US for corn remain strong and, despite significant cuts in US corn exports, there is still a strong pull from the ethanol industry and the livestock sector.

"Prices are at very high levels right now in terms of historical terms. They have eased off in terms of the futures markets since last summer depending on what commodity you're talking about," said Mr Burnett.

"Basically for wheat and corn the futures markets have come off however the basis levels have strengthened considerably so that's making the corn and wheat costs not drop nearly as much.

"I think what you're going to see from a user perspective of feed grains going forward in the next quarter at least to the next two quarters is that you're going to see this limited supply causing basis levels to increase and certainly that's going to be a concern for buying supplies nearby.

"As you move out into newer crop positions where the harvest is going to be available, again you're probably going to see a fairly significant drop off in cash prices out in those areas of the calendar.

Mr Burnett notes the USDA indicates the area planted to corn in the US this year will be similar to last year, which was at an historically high level.

He says, with improved weather, improved production is expected and an easing of the supply concerns.

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