February 1, 2012

 

Rabobank fuels US corn stock fears on higher crop price

 

 

As Rabobank upgraded price projections for a range of agricultural products, it revived worries over US corn supplies, warning investors against assuming that improved crop stocks are in the bag.

 

The USDA earlier this month eased concerns over domestic corn supplies, saying inventories would end 2011-12 at nearly 850 million bushels, well above levels the market had foreecast.

 

However, Rabobank analysts pegged their estimate at 608m bushels, lifting their forecast for US exports and joining commentators voicing concerns over official data on the grain's use in livestock feeding.

 

"Feeding intensity, on USDA estimates, has trended near all-time lows, leaving us sceptical of the recent USDA numbers," the bank, a major agricultural lender, said.

 

The bank's forecast for carryout stocks, compared with consumption to form the much-watched stocks-to-use ratio, works out at a record low of 4.7%, signalling that prices should remain firm.

 

Furthermore, prospects for corn sowings next year may not be as bright as some other analysts have forecast, with the price of the grain, as compared with soy, the major rival in the US for acres, recovering over the last month to 2.2 on a new crop basis, from less than 2.1.

 

"There has been significant and steady deterioration in the incentive to plant corn in recent weeks."

 

Higher soy-to-corn price ratios signal to farmers that it may be more profitable to plant of the oilseeds, and lower ones to sow corn.

 

However, Rabobank, while edging higher its forecast for average corn prices this quarter, upgraded more significantly its outlook for Chicago wheat futures, by US$0.45 a bushel to US$6.40 a bushel, citing risks such as dryness in Canada ahead of spring sowings, and the prospect of higher Chinese imports.

 

China, whose use of wheat in feed has nearly doubled over the last decade, will import three million tonnes of wheat in 2012-13, compared with exports of the same amount in 2006-07.

 

Furthermore there are "increasing risks of political intervention in the Black Sea region", thanks to the risk of a "substantial production drop in 2012-13 [which] may be the key conference for the wheat market in 2012".

 

Ukraine winter grains have already suffered substantial damage from a dry autumn, with cold temperatures now representing a further threat, and to Russian crops too.

 

The bank made notable uplifts to ideas on prices of cocoa and palm oil too, with values of the vegetable oil supported by the prospect of constrained supplies of rival soyoil, following drought damage to the soy crop in top exporter Argentina.

 

"Given the drought situation in South America and end-user concerns about its impact on soyoil availability, we expect demand for palm oil will remain strong."

 

For cocoa, dry weather in West Africa, the main production region, had lowered production prospects, with Ghana and Ivory Coast looking at a combined 2.2 million-tonne crop, down some 13% year on year.

 

The world was looking at a 100,000-tonne production deficit this season, compared with a 367,000-tonne surplus the previous season, and a far worse outcome than the market initially expected.