Tuesday, April 3, 2012

Markets Recover after USDA report

After experiencing strong losses late last week, the USDA acreage and stocks report on Friday night didn’t justify the previous declines. As a result all markets finished sharply higher. Although it will be the highest corn acreage in 75 years, beans and wheat ‘intended acreage’ was below what the trade expected. While domestic US stocks all come in below expectations, which also contributed to the positive gains.

Wow, even though corn acreage was 1ma higher then average trade estimate, old crop contracts finished “limit up” with stocks being sharply lower then expected (-23mmt from March ’11). However these acreage estimates are taken earlier this month. And since then, the bean premium to corn has gone from to +651c to +759c!  The trade may not get a better picture until the June acreage report, but one thing that won’t happen this year is the 3ma that wasn’t sown to corn due to prevent plant.

Higher cash basis on the back of better than expected demand over the past quarter has the potential to push corn stocks to historically tight levels. It’ll be interesting to see were futures settle if there is any production hiccups this year, as I’m sure the record highs of last year will be within reach. The new crop inverse is now at a staggering 110c, after being only 50c at the start of the year, highlighting strong demand.

Total US wheat planting was forecast at 55.9ma compared with trade expectations of 57.4ma.  Although all wheat acres were 1.5m higher then last year, it wasn’t as high as the trade was expecting. That’s what happens when the market declines 47c before a report, it has to be extremely bearish to justify the previous strong losses. Spring wheat was the most bullish of wheat grades as intended acreage being 418k acres below last year and 1.7ma behind 2010.

The oilseed complex continues to be the darling and driver of agricultural futures, with the smallest ‘intended’ sown soybean crop since 2007 driving the market higher. Forecast planted acreage was 1.5ma below the trade average, with the thinking that beans need to get an additional 3ma to cover tightening new crop stocks and surging demand.  The crop is 1ma below 2011 and 3.5ma below 2010 final acreage. So thoughts that the bean market will need to move higher over the near-term to help spark more planted area and to help reduce demand has sparked continued strong buying. Across the border, the Canadian Prairies are looking to plant anywhere between 21 to 23ma. This compares to the previous record set last year of 18.9ma.  With ideal sowing conditions (albeit a bit dry) this has the potential to weigh on market sentiment short term.

Oil World last week pegged world bean production at 22mmt lower in 2011/12, and combined with a constant stream of bullish lower Sth American output (4 -5mmt lower then March USDA estimates) sets the scene for volatile couple of month for canola prices.    The market is now 33c from the 1st Sept ’11 soybean high, which in itself was the highest since the commodities boom in mid 2008. However with already a record net long position in soybeans, how long with the funds hold out on their bullish bets? Will they cash in their chips soon, or ride it out anticipating a bullish year for the oilseed complex.

In another note the IGC pegged world wheat production for the 2012/13 season at 681mmt, -15mmt from ‘11/12. Return to average yields and reduced acreage is behind the catalyst. Kazakhstan for example 2012 wheat output is forecast at 15mmt, -12mmt from 2011. Global consumption is pegged at its smaller year on year (YOY) increase (+2mmt), but still at a record 683mmt. Whilst world corn production is pegged at 900mmt, +36mmt from 11/12. Consumption was bumped up to 2mmt (893mmt), which like wheat was the lowest YOY increase.   Also of interest, production is higher than demand for the first time since the 2008/09 season.

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