Our longstanding prediction that feed crop prices will rise in Q4 is firmly rooted in supply fundamentals. With the US harvest 103 million tonnes below expectations, they show every sign of being short of demand. While US corn exports are down sharply, other parts of the demand equation have yet to fall in line with lesser supplies. Yet, corn prices are no higher than when the crop was assumed to be at least 80 million tonnes more than it turned out to be.

 

Our assumption CBOT corn would deflate come Q2 2013 is also predicated on fundamentals, albeit of a more probabilistic nature: The assumption that historically high prices would boost Latin acreage to record levels.

 

Along with El Nino-driven wet weather replenishing last year's drought afflicted soil this combination should make for large Brazilian and Argentine harvests -and softer prices from late Q1 2013 onwards. The price softness also rides on USDA predictions that Argentine corn exports would reach 18.5 million tonnes, finally breaking their longstanding mid 2000s record of 16.5 million tonnes.

 

With 2012/13 Argentine exports up to 7 million tonnes higher than their 2011/12  total and Brazil adding another 4 or 5 million extra to the punch bowl, it was hoped that this would create a supply bounty by Q3 of next year. This would especially be true if the world falls into a demand-driven recession, which appears to be an increasingly likely outcome.

 

Optimistic supply assumptions are now in danger of succumbing to too much of a good thing -wet weather.  On October 18th, The Buenos Aires grains exchange reported that "Planting of commercial corn has been slowed down due to continuous rainfall that has been recorded over much of the agricultural area." With 300mm of rain (12-inches) having fallen in some areas, only 32% of intended acreage is sown with corn, as opposed to the 43% normally seen at this time.

 

This follow earlier Brazilian reports of excessive rains, mixed with hail and frost in some cases. These delayed planting in some areas and forced a replanting of seeds in other parts of that country. This could impact H1 2013 supply assumptions about corn and soya beans, but more so corn.

 

If weather delays sowing into November, that risks corn pollinating in South America's intense mid-summer heat, which could damage crop yields, and remove those that export bounty from the equation.

 

By comparison, soy's pollination would occur after the worst heat is over and the crop is less sensitive to high temperatures to begin with. Consequently, if bad weather delays planting for another one to two weeks, farmers may opt to shift some of their corn acres to soy planting.

 

The net result being that the world gets a fewer million tonnes less of corn for export and more soy than it expected. Hence, the next ten day's weather must be watched carefully, as it could result in stronger grain markets and weaker oil seeds come Q2 2013.