South America's prospects for replenishing world corn and
soybean pipelines may be less strong than investors believe, Morgan Stanley said, cautioning
that weather indeed significant risks to supplies.
The comments come amid a revived market focus on weather
risks to South American crops, which the world is relying on to replenish
stocks dented by poor harvests in the region and the US last year.
"The market is underestimating the risk that Argentine production
shortfalls could pose to global prices," the bank said, flagging the risk to
yields from late sowings.
"By the first week of December, only 55% of the nation's
corn crop was planted, down from 68% last year," a delay - caused by persistent
rains - which "will materially reduce the country's corn yield potential".
"Yields in corn planted after the middle of November average
at least 1 tonne a hectare lower than in corn planted before that window."
'More vulnerable than
usual to dryness'
Furthermore, "adding insult to injury", weather has turned worryingly
drier this month in western Argentina, responsible for roughly one-third of domestic
corn and soybean output, leaving soil moisture levels below 20% of capacity and
with little moisture in the forecast..
MS forecasts for Argentine crops 2012-13, (change on USDA estimate)
Corn yield: 6.7 tonnes per hectare, (-1.3 tonnes per hectare)
Corn harvest: 23.5m tonnes, (-4.5m tonnes)
Corn carry-out inventories: 992,000 tonnes, (-158.000 tonnes)
Soybean yield: 2.7 tonnes per hectare, (-0.1 tonnes per hectare)
Soybean harvest: 52.1m tonnes, (-1.9m tonnes)
Soy end-stocks: 20.3m tonnes, (-1.0m tonnes)
"This comes just as late-planted corn enters pollination,
the point in the crop's development when yields are set and when moisture is
most critical. "Our local contacts have also expressed concern that the wet
start to the season discouraged adequate root depth, leaving crops more vulnerable
than usual to dry weather today."
The bank estimated Argentina's corn harvest at 23.5m tonnes,
well below the "optimistic" forecast of 28m tonnes from the US Department of Agriculture,
whose data are closely watched by investors.
"This leaves nearly 3m tonnes less corn available for Argentina
to export in 2012-13."
For Brazil, Morgan Stanley voiced concern over the dearth of
soil moisture in north eastern areas, in the grip of a two-year drought.
"Dryness in these states has been less of a market focus to
date, since they fall outside of the country's main agricultural belt.
"However, with the region responsible for 16% of the country's
corn acreage, attention is necessary."
And the bank cautioned over investors ideas of a record
Brazilian soybean crop, of more than 80m tonnes, being "overtly bearish" for
prices, in signalling weaker demand for US shipments.
MS forecasts for Brazil crops 2012-13, (change on USDA estimate)
Corn yield: 4.4 tonnes per hectare, (-0.2 tonnes per hectare)
Corn harvest: 71.0m tonnes, (in line)
Corn end-stocks: 8.6m tonnes, (-700,000 tonnes)
Soybean yield: 3.0 tonnes per hectare, (in line)
Soybean harvest: 81.3m tonnes, (-740,000 tonnes)
Soy end-stocks: 14.9m tonnes, (-2.3m tonnes)
"We contend, by contrast, that an 80m-tonne crop is not
sufficient to materially pressure US soybean prices from current levels."In fact, we believe the US balance needs no less than an
80m-tonne soybean crop, to keep the stocks-to-use ratio above record lows."
Morgan Stanley estimates flagged the need for Brazilian
soybean exports of 39.4m tonnes, and Argentine shipments of 10.6m tonnes, "just
to reach global equilibrium".
"If either country's production falls below our forecasts,
stocks-to-use would fall to untenable levels."