The USDA on late Thursday night had
their first look at anticipated 12/13 world crop production estimates. The
report was essentially bullish for oilseeds, bearish for corn and neutral to
negative for wheat. The record US corn is one to watch, and if the
yanks pull this one off it has the potential to weigh on feed grain markets
throughout most of next year. However it is still very early days yet in the
growing season, and the USDA dialed in above trend yields for corn and beans. This
huge acreage has to come from somewhere, and these are usually on more marginal
land and more corn on corn acreage. So expect yield forecast to be lower then
anticipated, even if growing season ends up being average.
Biggest
surprise from old crop wheat S&D was consumption increased by 7.6mmt, as a
result ending stocks were reduced to 197mmt, a far cry from the 212mmt that was
originally forecast earlier this year. Looking forward to new crop (12/13), production
is estimated at 677.6mmt, a drop of 17mmt as crops return to normal yields. Some of the cuts
include Ukraine (13mmt, -41%), Kazakh (15mmt, -34%), Aussie (26mmt, -12%) and
Argentinian (12mmt -17%). Whilst the Yanks
are going to have a monster crop (62mmt +12%), Canucks (27mmt +7%) and Indians
(91mmt +5%). Consumption is
seen falling 7.88mmt, due to the outlook for a bumper world corn crop and
subsequent corn muscling in on feed demand. Even so, at
686.5mmt the world will consume 11mmt more wheat than it produces in 2012/13, meaning
that world ending stocks are seen declining by 9mmt to 188mmt. This is a stocks
to use ratio of 27%, the fourth year of continuous declines, but a far cry from
20% in 2007/08.
The
USDA surprisingly lifted US old crop corn stocks by 1.27mmt to 21.6mmt. Not
even the most bearish analyst had forecast a rise. Brazilian estimates were bumped up by
5mmt (with the second planted crop showing better potential), so world ending
stocks increases to 127.56mmt. Looking at new crop, and as expected
the US corn crop is a record 376mmt. If this eventuates will change the entire
worlds S&D fundamentals quite dramatically next season.
US ending stocks will more than double to 47.8mmt, the highest since
05/06. It also means that world ending stocks will recover 24.78mmt to
152.34mmt, the highest in twelve years. Increases in
production around the globe in 2012/13 are expected from Argentina (25mmt,
+17%), Canada (12.6mmt, +18%), Mexico (21mmt, +11%), South Africa (13mmt, +13%)
and Ukraine (24mmt, +5%).
More
cuts to South American beans was expected, however further cuts are surely
likely next month (especially Argentina). Originally,
total South American production was pegged at 134.6mmt, it is now at 111.5mmt,
a decline of 25mmt! This means most
demand will fall to the USA before the next South American harvest gets
underway. Chinese
imports were also increased by 1mmt to 56mmt. US exports were
increased by 700kt to 35.79mmt, while a cut to ending stocks was more than
expected to 5.7mmt. It gets interesting looking at 12/13 production, and
although the US crop is set to rise to 87mmt (+4mmt), US ending stocks are
forecast to slump to only 3.94mmt. This will be the tightest stock to
use ratio in 47 years! US exports are
pegged at 41mmt, an increased of more than 5mmt at the expense of Sth American
suppliers. Chinese
demand is set to further increase to 61mmt, an increase of 4mmt from 11/12.
The USDA is
forecasting a world rapeseed/canola crop very similar to that of the past
couple of seasons at 60.4mmt. A sharp drop in the crop in Europe
will compensate for the increased production in Canada.
However increasing demand will have global ending stocks forecast at a
nine year low in 2012/13. With EU rapeseed futures spiking late last month on
the prospects of frost damaged output, will
pressure EU processing margins later this year. The EU rapeseed crush for
2012/13 may decline 2% from the previous year to 20.9mmt. But with Ukraine
exports forecast to be slashed, Aussie exports should continue to find strong
premiums into the GM free EU market.
So
back to Australia, and one thing that looms like a gorilla weighing on APW
ability to rally strongly into 2012/13 is the forecast monster US corn crop.
But in the short term the fund length in the soybean market continues to make the
canola market erratic. As we saw on the weekend when the funds sell back their
positions, the consequences is the market flirts with a limit down move; even
in the face of fundamental sentiment! Short-term oilseed complex still looks
the pick of the punch, with international demand still strong. Whilst the
global economic uncertainty continues to pressure the AUD (limiting domestic
price declines), as money flows back into the USD. The CBA came out today
pegging short-term range of the dollar between 0.98c – 103c, a whopping 10c
adjustment from their earlier forecast! You think forecasting grain futures is fraught with difficulties!
But
as always, forecasts are still forecasts and it all comes down to the weather. I’m
sure ‘ol mother nature has a few aces up her sleeve to deal out during the 12/13
growing season, and with global old crop stock getting tighter, it won’t take
much to again ignite the futures market. But if you just dial in current
conditions, forward markets don’t hold much of a positive vibe.
