March 21, 2012


China's grain import estimates stir confusion



The grains import of China were mixed over the past two weeks, with soy higher, corn steady and wheat lower, according to USDA.


Soy reacted to USDA lowering the estimate of the Brazil crop to 68.5 million tonnes, compared to 72 million predicted a month earlier. Argentina's crop was lowered to 46.5 million tonnes, down 1.5 million from their previous estimate. Some private estimates put Brazil's crop as low as 67 million tonnes.


USDA also put out new demand/ supply estimates. The US corn carryout was left unchanged at 801 million bu., while the soy carryout was pegged at 275 million bu., also unchanged. The wheat carryover was put at 825 million bu, down a minor 20 million bu. The ending stocks to usage ratios then are 6.3 %, 9.1 % and 38.2 % on the three crops.


There was much chatter recently about China's import needs. Many think they will import more than the four million tonnes of corn USDA is predicting. Corn prices there are near US$10.00 per bushel, putting into question whether they actually did have a record crop last year. Soy imports will easily set a new record also at 56 million tonnes, or over one million tonnes per week.


Food inflation is getting out of control in China, running at a 16 % annual rate. The only solution is to increase the supply of food. The reduced supplies in South America means they will need to buy more from the US. This is supporting grain futures.


Basis levels on local grain have weakened, especially in corn. Most end users are covered for at least a month or two. Farmer selling has been steady, as prices remain over US$6.00 per bu. New crop corn, however, is under US$5.00, with few takers at the discounted level. New crop soy, however, at US$12.30, are attracting interest from producers.


US weather will become the focus for traders now. There is some correlation between a warm, dry winter and reduced precipitation the following summer. The Northern Plains, Prairies and western grain belt are all very dry for this time of year, with basically no snow cover anywhere. This could mean earlier than normal planting.


Our weather, too, has been unusual, with temperatures up to 25 degrees F above normal. This is expected to continue for at least another 2 weeks. The wheat is already greening up, and looks like it weathered the winter well. We could see some of the earliest planting ever this spring.


In financial markets, the US stock market traded at its best levels since May 2008. The US economy is showing better growth, although unemployment remains stubbornly high. Gold fell US$148, as uncertainty in Europe eased. The US dollar also rallied, as money flowed into US equities. Interest rates are slowly moving higher in the long end of the market, so mortgage rates may begin to firm.