May 13, 2011

 

US soy and corn supplies to remain low next year

 

 

US forecasters perceive little relief from limited soy and corn supplies in 2011, thus, giving support for prices as traders concentrate more on the new crop.

 

The USDA projects end-of-season soy supplies for the 2011-12 marketing year at 160 million bushels. The estimate released on Wednesday (May 11) is the agency's first for the new crop year, which runs through August 2012.

 

The new forecast is the lowest starting projection from USDA since the 1988-89 marketing year, and it is also less than the agency's estimate of 170 million bushels for the current crop year.

 

Soy futures for November delivery, which is the most actively traded contract for the upcoming crop, closed at US$13.21 a bushel on Wednesday (May 11).

 

The tight supply scenario places increased pressure on US farmers to produce bumper crops in 2011, with the USDA already forecasting supply reductions based on average yields and a projection for farmers to plant fewer acres than a year ago.

 

The tightness of the inventory forecast leaves hardly any breathing room for any threats to plantings or crop production, said an analyst.

 

The US is seen needing end-of-season inventories of 140 million bushels to keep the supply chain moving until new crop harvests bring fresh supplies on line.

 

Meanwhile, corn inventories are also expected to remain historically low in the next crop year due to strong demand. Federal forecasters project season-end supplies at 900 million bushels in the 2011-12 marketing year, which also starts in September, up 23% from 2010-11 estimates, but below the traditional comfort level of one billion bushels. The tight supplies leave grain users nervous about potential weather threats to the crop farmers who are planting now for harvest next fall.

Corn futures could climb to US$9 a bushel to US$10 a bushel if poor global weather hurts output, said an analyst. The December contract, which is the most actively traded contract for the upcoming crop settled at US$6.26 a bushel on Wednesday (May 11).

 

"We still cannot afford a weather problem," the analyst added.

 

As for soy, it would have been hard for the USDA to come up with a new crop ending stock estimate without a year-over-year decline, said another analyst.

 

USDA was forced to use a trend line yield projection and acreage from its March 31 prospective plantings report to calculate supply based on a crop that was only planted at 7% last week, the second analyst said.

 

"I am not surprised by the tight forecast, and shows the potential for a significant crop scare rally emerging if any crop worries surface," she added.

 

The scare could come from either wet weather turning into a hot, dry summer or wet conditions lingering long enough to encourage farmers into taking preventive planting insurance instead of switching unplanted corn acres to soy," she said.

 

The USDA projection projects a pretty fragile supply situation, but the tightness is seemingly confined to the US, as the USDA forecasts year-over-year increases in inventories of most world oilseed supplies.

 

The USDA's effort to keep supply projections at a manageable level until the 2011 crop is sown resulted in a decline in usage from exports, a feat contingent on demand from the world's leading soy importer China.

 

"The market will need to push prices to levels that will encourage more South American plantings in the fall to alleviate any strain on US inventories," the second analyst said.