Monday, December 12, 2011


The USDA released their latest December supply and demand (S&D) on Friday night our time, and really failed to offer the market any fresh fundamental news. However markets still reacted to the news, especially the oilseed complex. March wheat was 1c lower (596c/bu) while the Dec ’12 remains at 75c premium. Early selling drove wheat to lowest level since July 2010. Continued competition from traditional exporting countries continues eat into US market dominance. All traditional exporting countries were revised higher: Australia 28.3mmt, Canada 25.26mt and Argentina 14.5mmt.  As expected, US exports were revised lower by 1.36mmt to 25mmt for the 2011/12 (June- May) marketing year.

World ending stocks were pegged at 208.52mmt, +5.9mmt from last month. This is a new ten-year high. Word use was also revised 3.37mmt higher at record 680.2mmt. While output for the EU 137mmt, India 86mmt, Russia 56mmt, Pakistan 24mmt, Ukraine 22mmt, and Kazakhstan 21mmt were unchanged. World stocks to use ratio was adjusted 3.2% higher to a healthy 41.7%, and 6% higher then last year. US wheat-ending stocks were pegged at 23.9mmt, compared with 22.5mmt last month. HRW stocks were adjusted higher to 9.3mmt from 8.6mmt last month, while spring wheat was unchanged at 3.5mmt.

Corn was 6c lower (594.25c/bu), while Dec ’12 is at a 41.50c discount. The USDA S&D report was also seen as slightly negative for prices as stocks continue to swell. But like wheat, supportive news at the lows was enough to drag futures higher. Some dry weather concerns for the southern Brazil/Argentina corn crop for the next week plus news that China was buying 12mmt of corn for reserves from their producers were seen as positive.

World corn ending stocks were adjusted higher to 127mmt, +5.4mmt from last month and 1.08mmt lower then last year. Chinese stocks accounted for most of the jump, with production +7mmt to a record 191.75mmt. Amazingly the Middle Kingdom corn output over the 10 years has increased by 77mmt.  The jump in ending stocks was seen as negative, world ending stocks/usage is still just 14.6% vs. 14% last month and this is still the lowest since the 1973/74 season. US ending stocks for the 2011/12 season at 21.5mmt, compared with trade expectations at 21mmt and last months estimate of 21.4mmt. US Stocks to use ratio is still at a very tight 6.7%, which is the second lowest on record and down from 8.6% last year.

Beans coped a hammering, with Jan contract  -25.5c (1107c/bu) with the Mar ‘12 contract spread at a 9.50c premium. The contract closed at its lowest level for 14 months. But like other commodities rallied from the lows. World ending stocks for the 2011/12 season came in at 64.5mmt, which is the second highest on record. US (83mmt), Brazil (75mmt), Argi (52mmt) output remained unchanged, while Chinese (13.5mmt) was revised lower.

Unlike other commodities, global demand was 940kt lower to 260mmt. But still sharply higher from 238mmt in 09/10. The USDA pegged US soybean ending stocks higher at 6.2mmt compared with Nov estimate (5.3mmt) and Oct (4.3mmt).  This is a stocks/usage of 7.6%, which is the highest since the 06/07 season, and compares to 4.5% in 09/10. In regard to looming export completion to Sth America when new crop comes off in April/May. US Exports were revised down 680kt (35mmt) and crush down by 272kt (44mmt).

Winnipeg canola values also reacted strongly with Jan canola -$11.10 ($499.50), whilst the Mar contract for the first time in a while is at a premium (+$1.10). Canola coped a flogging, experiencing its biggest one-day decline for over two months and stopping the previous five sessions of positive price momentum. A strong reaction to the USDA numbers, with global oilseed stocks at large numbers and demand lowered pressured prices. Over the channel, Matif Feb ’12 rapeseed -€4.25 (€421.75), with the May contract spread at a €14.50 discount. In local dollar terms the contract has decreased by $6 to A$553.

So what is the wash-up…. The oilseed complex continues to be heavily influenced by outside macroeconomic noise, with ethanol subsidies under the spotlight. If global recessional fears spark a decline in oil prices Will it be a crash in the Aussie dollar (fallout from EU debt crisis), production hiccups in 2012, or even a drought in Australia (after experiencing the fifth consecutive year of higher production for the first time) that will drive prices higher in 2012? Or will burgeoning Chinese and East Asian demand provide an outlet for high stocks (not to mention the 9mmt of old crop carry over) in delivering some pricing support.

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