March 21, 2012

Soy is trading at six-month highs lifted by strength in US export demand and concerns about the effect of Southern America's dry weather lowering its output estimates.

Soy balances have tightened over recent weeks with downward adjustments to Brazilian and Argentine production and the USDA forecasting flat on-year US acres.

Tighter South American supplies have led to increased export demand for US soy. Further concerns of acreage allocation ahead of the US spring planting season and the need to attract acres are also supporting prices.

Old crop corn supplies are whittling down with strength in US export demand and lowered South American production.

Developments in China are key for the corn market with domestic Dalian corn prices in China hitting record highs this week and news from Sinograin (which manages China s state grain reserves) that it had stockpiled only 1.2 million tonnes of corn from last year s harvest since December just over a tenth of the 11 million tonnes stockpiled from the 2010 harvest.

Excessive rains in northern China raise quality concerns about the corn crop and the import arbitrage looks attractive boding well for expectations of higher Chinese imports.

We remain positive on grains prices and have revised up our 2012 annual corn price forecast by 2% to US$6.30/bushel and our soy forecast by 7.8% to US$13.21/bushel.