Grains markets have had a rather eventful 2012 so far with choppy price moves, weather concerns focused on the South American drought spurred by the La Nina, a pick up in Chinese import demand, tightness in old crop corn supplies and the emergence of soybeans as the leader of the CBOT complex, said Barclays Capital in a commodity briefing.
While corn, wheat and soybeans prices all rose in the immediate aftermath of the release of the 30 March USDA Prospective Plantings and Quarterly Stocks reports, since then soybeans have extended price gains while corn and wheat have pulled back, Barclays added.
For corn, the change in market perception is very much premised on expectations for a hefty 2012-13 US crop. With an early start to the US spring planting season, crop planting progress has been rapid and market participants retain a positive view on US yields.
"However, while there has been a strong start to US plantings, are we out of the woods as yet? Where do the risks lie? The first and key risk of course remains weather, which is as ever the eternal wildcard in agricultural markets. Recent rains have been supportive but we are very early on in the planting season and frost is a fear for early planted corn,” Barclays said.
The next risk is yields – perceived wisdom draws a link between early plantings and higher yields and the USDA estimates 2012-13 US corn yields at 164 bushels/acre, which would be the second highest level of US yields on record.
So far, US corn yields have come in above the 160 bushels/acre only twice (in 2004 and in 2009). The difference between 164 bushels/acre and 153.8bushels/acre (which is the average of the past five years) can make a substantial dent in available supplies, market sentiment and prices. The need for a hefty US corn crop in 2012-13 is immense with old crop corn supplies remaining very tight.
“In terms of acreage allocation, while the Prospective Plantings report revealed that US farmers intended to plant 95.9mn acres of corn and 73.9mn acres of soybeans, with the continued strength in soybean prices (and the weakness in new crop corn prices) final acreage, in our view, is likely to show a marginal shift away from corn and into soybean,” the bank added.
However, “we would expect this to be of a modest nature. On the demand front, Chinese import appetite is a key source of upside risk. We expect an uptick in Chinese soybeans imports on positive crushing margins. March China Customs data showed that China imported 4.8mn tonnes of soybeans, up 26% m/m and 38% y/y,” they continued.
“This implies an upside risk to the current USDA 2011-12 estimate of Chinese soybean imports of 55mn tonnes, in our view. We also anticipate an upward revision to US soybean exports following the tightening in South American supplies. Chinese import demand is also a concern for the already tight US old corn crop supplies as the import arbitrage window is attractive for Chinese importers with domestic Chinese prices remaining high. Any unexpected purchases of old crop corn will be a bullish catalyst for old crop corn prices and tighten US stocks further,” Barclays stated.
As things currently stand, soybeans are likely to remain the front-runner across the three markets, as South American supply tightness has put ever more pressure on the need for US supplies. While indeed the 2012-13 planting season has got off to a strong start and weather conditions have been supportive so far, there remains a high degree of uncertainty through the planting and growing season, which may imply altered supply and demand expectations than those being factored in at the moment, Barclays concluded.
Source: Commodity Online