World stocks of cereals are at their lowest level for more than 20 years, and supply and demand is expected to tighten over the next 12 months. As Western nations look to reduce their dependence on oil from the Middle East, biofuel production is set to increase dramatically over the next few years.

However, in the short-term, the cereals market is being driven by demand for palm oil. The latest weekly bulletin from the Home Grown Cereals Authority says: "World vegetable oil prices are continuing to rise. Malaysian palm oil futures have risen by $50 per tonne over the last fortnight, reflecting prospects of demand rising faster than supply."

The mild and dry autumn conditions have prompted a considerable expansion in the area now under winter wheat.

That pattern is common throughout the European Union, with the result that the market for all grains is now at its highest level for more than a decade. The London futures market is now quoting wheat for March 2007 at just short of £100 per tonne, but the spot market is a shade firmer with a delivered price in Scotland for next week of £104.50 per tonne, which is almost £7 higher than in East Anglia. These prices are more than £20 per tonne higher than last December.

Feed barley prices have also moved upwards, and while that will add to the costs of the intensive pig and poultry sectors, there will be a knock-on benefit for the malting barley sector, with the trade now seriously concerned about future supplies for the brewing and distilling industries.

Source: The Herald