Monday, April 4, 2011

USDA Stocks & Planting Report confirm tight corn stocks

Markets didn’t disappoint after last Friday morning release of USDA stocks and acreage report. Since that time wheat futures have shoot up by A$ 15/t, corn $30/t and soybeans $12/. So what is the acreage report? This is just an initial estimate on what US farmers intend to plant leading into their spring. So if intended acreage is low enough, the market has to move higher to try and capture more acreage from other crops to maintain current demand and usage.

Remember this is only an intention! Sowing doesn’t usually kick off in key regions until late April/May. With cool and wet conditions this spring already raising planting concerns in the US Midwest and especially in the Northern US Plains states and extending well into the eastern half of the Canadian Prairies, there may be some gap between acres "intended" and those that are "actually" seeded.

Wheat had the more bearish sentiment (US carryout stocks will remain historically high), and although it will follow corn in the short term, it is going to need to find added support from concerns about the new-crop US wheat situation. The bulls will focus on the dry April-May Central Plains outlook.

Bean stocks are still tight, although ‘intended’ acreage is expected to drop this year (-1%), this will still be the third largest crop sown on record! This just reinforces the point that these big acreage (and high prices) are needed constantly to meet new export demand, there is little room for error.

With corn recently touching 2 ½ year highs, US growers intend to plant 5% more corn this year on expectations of better returns. The corn stocks data is the bullish factor for the future. And while the acreage number is a little higher than expected, uncertainties of the coming seeding/growing seeding ahead is likely to maintain support under the market.

Further bullish sentiment was reinforced by the stocks report with corn stocks at the bottom end of trade estimates and 35% lower then the last quarterly stocks report in December. The stocks total implies strong quarterly use, with the preceding high prices not choking off demand and rationing supply (which the market needs to cool prices).

So far these higher international prices have not equated to domestic prices. Basis (which has been at a historically high level all year) has started to decline as local demand dries up; buyers are stating that they have adequate stocks for the short term. Also a record 550,000/t of wheat/barley export commitments slipped from March to April, the shipping stem is getting increasingly congested (limiting new short term demand).

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