PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 21:28 GMT, Monday, 9th Dec 2013, by Agrimoney.com
Strong exports promise cut to US corn, soybean supply hopes

OK, the world has lot more corn and soybeans than a year ago, after strong US harvests.

But how quickly are these fresh supplies being used up?

The lower prices of corn, in particular, brought by a bumper US crop - with corn harvests seen setting records in second-ranked producer China and third-ranked exporter Ukraine too - have encouraged consumption as well.

And that looks the main theme of the US Department of Agriculture's latest Wasde crop report, due on Tuesday.

'Created demand'

"With prices coming down in the last three to four months, that has created demand," Jason Roose, at Iowa-based broker US Commodities, said.

Market expectations for Wasde corn estimates, 2013-14, (current figure)

US stocks, end of season: 1.871bn bushels, (1.887bn bushels)

Range of estimates: 1.737bn-2.013bn bushels

World stocks, end of season: 163.3m tonnes, (164.33m tonnes)

Range of estimates:156.95m-165.5m tonnes

Sources: USDA, Reuters poll

"End users have not just tried to buy for now, but to lock in cheaper grain for the long-term."

This Wasde is expected to reduce expectations for US inventories of corn, soybeans and wheat as of the end of 2013-14, potentially giving a bullish tinge to the Chicago market, the world bellwether if only temporarily.

(It has to be remembered that the US has, after all, enjoyed strong harvests this year, and South American crops, so far, are finding benign weather.)

Bumper exports

Evidence for strong consumption is not hard to find, with Mr Roose terming demand "off the Richter scale for soybeans".

Market expectations for Wasde soy estimates, 2013-14, (current figure)

US stocks, end of season: 153m bushels, (170m bushels)

Range of estimates: 118m-170m bushels

World stocks, end of season: 70.23m tonnes, (71.64m tonnes)

Range of estimates: 70.0m-75.79m tonnes

Sources: USDA, Reuters poll

Weekly US export data show that the US has, five months into the 2013-14 marketing year for the grain, sold 76% of the sum the USDA has factored in for the whole season.

Demand has been particularly strong from Brazil whose default source of import supplies, neighbouring Argentina, is in the midst of what looks like being a second successive small harvest.

And the data for row crops (for which the marketing year starts later) are even stronger.

For corn, the US has sold 73% of the total exports expected for 2013-14, which is only a little over three months old for the grain as it is for soybeans, of which the US has sold 95% of the full-season shipment estimate.

Importers to switch?

So there is a case for the USDA to raise consumption estimates for all three crops, implying lower stocks at the close of 2013-14.

Market expectations for Wasde wheat estimates, 2013-14, (current figure)

US stocks, end of season: 540m bushels, (565m bushels)

Range of estimates: 404m-570m bushels

World stocks, end of season: 179.11m tonnes, (178.48m tonnes)

Range of estimates: 176.3m-182.2m tonnes

Sources: USDA, Reuters poll

That looks an especially likely scenario for soybeans, for which US soymeal shipments are proving strong too, meaning that the domestic crush estimate, as well as the export figure, could be in for an upgrade.

The one potential hiccup is the risk of cancellations by buyers, and especially by top importer China, if South America turns out to have a good harvest, and offers a cheaper alternative.

"That is potentially a very significant factor," Rich Nelson, chief strategist at broker Allendale, told Agrimoney.com.

'Still theoretical'

But is it big enough to threaten an upgrade in the Wasde to the US export estimate?

"At this point in the season, the idea of Chinese cancellations is still theoretical. We still believe the US ending stocks number will be cut," Mr Nelson said.

And, after all, 12.7m tonnes of China's orders of US soybeans have already been shipped.

As for a switch to Brazil, the country's strained logistics, besides the harvest outcome, give cause for importers to think twice.

"Given what happened this year, would you bank on getting soybeans out of Brazil in April?" Jerry Gidel, chief feed grains analyst at Chicago-based Rice Dairy, said.

Chinese cancellations

For corn, however, the argument is more nuanced.

Market expectations for Wasde Argentine crop estimates, 2013-14, (current figure)

Corn: 25.583m tonnes, (26.0m tonnes)

Range of estimates: 24.0m-27.5m tonnes

Soybean: 55.329m tonnes, (53.5m tonnes)

Range of estimates: 52.5m-59.5m tonnes

Wheat: 10.0m tonnes, (11.0m tonnes)

Range of estimates: 9.5m-10.5m tonnes

Sources: USDA, Reuters poll

Sure, the US has sold far more corn for export than the 50% or so of the full-season estimate which is more typical by this time of year.


But here, the risk of Chinese cancellations is real, after the rejection of some US cargoes containing a Syngenta genetically modified variety which is yet to be approved by Beijing.

"Though the cargoes are being resold to Asian destinations, the potential rejection at the port may slow down export activity and make the USDA reluctant to raise its [corn] export estimate," Deutsche Bank analyst Christina McGlone said.

Mr Roose said: "How many cargos will end up being rejected? There is talk it could be another 10 cargos."

USDA methodology

Furthermore, there is some feeling that US feed demand will not prove as buoyant as the USDA is currently predicting, with ranchers keeping hold of cattle to rebuild stocks, rather than selling to feedlots, and PEDv virus depleting the hog herd.

Besides, the idea of strong exports feeding through into lower inventories is dependent on the harvest estimate remaining the same.

While that is a fair assumption for a December Wasde, in which domestic production data is not revised, there is a widespread belief that come January, when final estimate for US harvests are released, the corn crop will be shown setting a record even more comfortably that currently seen.

"There is a lot of talk that the crop was better than expected," Mr Roose said.

And that could make the USDA reluctant to lower its US corn stocks figure, known that the estimate is likely to be raised again the next month.

"The USDA likes keeping its revisions on a steady trend," Mr Gidel told Agrimoney.com.

"There is a good case for saying they will leave the stocks figure the same this time."

South American upgrades?

And even if they do lower the US stocks estimate, the bullish impact on prices could be offset by increases to forecasts for South American crops, which will be harvested early in 2014.

Market expectations for Wasde Brazil crop estimates, 2013-14, (current figure)

Corn: 70.392m tonnes, (70.0m tonnes)

Range of estimates: 68.5m-72.0m tonnes

Soybean: 88.736m tonnes, (88.0m tonnes)

Range of estimates: 88.0m-90.4m tonnes

Wheat: 4.702m tonnes, (4.75m tonnes)

Range of estimates: 4.5m-4.77m tonnes

Sources: USDA, Reuters poll

In fact, it is soybeans which are most likely to see South American production upgrades, with relatively high prices, and decent sowing conditions, encouraging the oilseed rather than corn - an alternative for main-crop plantings.

For Brazil, which the USDA currently sees harvesting an 88m-tonne crop, "89m tonnes seems very reasonable, and we have seen estimates above 90m tonnes coming out last week," Allendale's Rich Nelson said.

Strong South American production would, of course, undermine prices of US crop.

'Tough guys holding out'

Indeed, it is not clear that Tuesday's report itself will influence prices significantly for that long.

"Once the report is issued, the market is likely to slip into the holiday doldrums, with weekly reports not expected to change market sentiment and major reports not scheduled until early January," New York-based broker Jefferies Bache said.

In Chicago, Jerry Gidel flagged the potential for a change in sentiment as producers, who have been holding out against sales this year in part to spread profits into 2014 for tax reasons, indeed see the calendar change.

"We have had tough guys holding out for higher prices. They are in a good financial position. They don't need the money now.

"But they can only remain tough guys for so long."

As for how long, that is a story for the new year.

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