February 1, 2011

 

Argentina's rains improves outlook for corn, soy

 

 

Argentina's rains have enhanced projections for the nation's vital corn and soy crops, but a dry start in the year prompted crop downgrades, according to Rabobank.

 

The bank also acknowledged the rains which look set to continue rebuilding moisture levels on Argentina farms.

 

"Recent rains have lowered the risk of extreme downside to our soy forecast," Rabobank analysts.

 

Nonetheless, thanks to the "hot and dry" weather earlier on, they cut their forecast Argentina's soy output by 4 million tonnes to 48 million tonnes, and that for corn, which had in particular already suffered "irreversible damage", by 2.5 million tonnes to 20 million tonnes.

 

Both figures are below the latest forecasts from the USDA, whose estimates set global benchmarks.

 

Indeed, further downgrades could be in the offing, the bank warned, noting that even in 2008-09, when Argentine soy production slumped to 32 million tonnes, the country received rains in late January and early February.

 

"Adequate rainfall in coming weeks would prevent the need for us to revise our forecast lower, but it would not be enough to provide above-average yields," Rabobank said in a report.

 

At a global level, the woes facing farmers in Argentina, the world's second-ranked corn exporter and third-biggest shipper of soy, looks set to further diminish prospects for supplies of the crops.

 

Without further demand rationing - which looks unlikely given strong livestock prices and high production of corn ethanol in the US - world corn inventories will fall below 120,000 tonnes this year.

 

Global stocks of the grain as compared with use - a key measure of the availability of supplies and therefore of their price potential - will fall to 12.8%, "a level not seen in more than 20 years, taking multiple seasons to recover".

 

For soy, the likely fall in world inventories appeared less drastic, with high prices already showing signs of curbing demand.  Nonetheless, at 16.4%, the forecast soy stocks-to-use ratio would represent a historically low level.

 

The bank added that, given its assessment that corn stocks were particularly tight, hopes for prices of the grain looked particularly firm, and were likely to outperform soy futures.

 

"We expect the recent trend in Chicago soy and corn futures prices to continue as corn has a strong need to 'buy' US acreage" in the spring sowing season.

 

However, both corn and soy futures held "further upside… despite the rainfall in Argentina as the underlying fundamentals continue to remain extremely tight".

 

The bank, terming its stance "bullish", said it saw "any short-term pullback as a buying opportunity".