Banks queued to caution over a decline corn prices, even as
futures fell to their lowest in nearly a month, weakened by expectations that a
major report later on Friday will point to supplies being less tight than had
Corn prices, as measured by Chicago's benchmark March
futures contract, have fallen some $0.25 a bushel this week, undermined by
forecasts that the US Department of Agriculture will, in its monthly Wasde
report, lift its estimates for domestic stocks of the grain at the close of
One broker, McKeany-Flavell, forecasts the Wasde, a
closely-watched report, will reveal an upgrade as high as 95m bushels for the corn
The squeeze on US corn supplies, stemming from a drought-hit
harvest last year, is believed by many commentators to have been eased by the
impact of high prices in stalling exports, and more recently the use of the
grain for making ethanol.
However, Macquarie, forecasting a "neutral" Wasde for corn,
said that futures were approaching a "fundamentally bullish story" which would
unfold in the second quarter of the year, as demand from ethanol plants
Forecasts for Wasde corn data, 2012-13m. range of estimates, and (current figure)
US year-end stocks: 618m bushels, 502m-697m bushels, (602m bushels)
Global year-end stocks: 115.49m tonnes, 114m-117m tonnes, (115.99m tonnes)
Argentine crop: 26.26m tonnes, 25.0m-27.8m tonnes, (28.0m tonnes)
Brazilian crop: 71.28m tonnes, 69.75m-75.80m tonnes, (71.0m tonnes)
Sources: USDA, ThomsonReuters
A "flourish" of Brazilian ethanol imports which has
underpinned inventories "is now coming to an end, and we would expect ethanol
to destock [in the US] through the first quarter of 2013 and into the second
quarter", Macquarie analyst Chris Gadd said.
"Once ethanol stocks have become depleted, we would expect
it to become the price leader of corn," with a rationing point which currently relates
to a futures price of nearly $9.00 a bushel.
In the livestock sector, demand from poultry and hog
producers was also "proving resilient", Mr Gadd said, adding that "the strength
of US feed demand for corn is one of the rationales of our bullish thesis for
Separately, Rabobank said that the pullback in corn
contracts covering the 2012 harvest "offers a buying opportunity", saying that
feed demand "appears to be running at a pace well above the level needed to
reach the USDA's forecast".
While the beef sector was showing signs of contracting in
response to corn prices which remain elevated by historical levels, numbers
were expanding at dairy, poultry and pork enterprises, which between them
account for 73% of America's so-called animal units.
"Even if margins were to fall, end users may choose to
endure losses in the near-term in expectation of lower feed costs once the
2013-14 harvest comes online," the bank said, forecasting a rebound of
one-third in US corn production.
"Strong US corn feed demand will result in [December-to-February]
demand will above the pace needed to reach the USDA's forecast, and prove bullish
to Chicago corn prices."
Australia & New Zealand Bank cited technical reasons for
a "buy" recommendation on corn, saying that the retreat in Chicago's July
contract to some $6.75 a bushel last month had completed a "classic correction"
giving back 50% of last year's rally.
Forecasts for Wasde soybean data, 2012-13m. range of estimates, and (current figure)
US year-end stocks: 129m bushels, 103m-140m bushels, (135m bushels)
Global year-end stocks: 59.19m tonnes, 58m-60.3m tonnes, (59.46m tonnes)
Argentine crop: 53.10m tonnes, 51.0m-55.70m tonnes, (54.0m tonnes)
Brazilian crop: 82.65m tonnes, 80.90m-84.00m tonnes, (82.5m tonnes)
Sources: USDA, ThomsonReuters
"Momentum indicators are also supporting," ANZ said,
forecasting "soon" a return to $7.25-7.55 a bushel.
The contract stood at $7.01 a bushel on Friday.
"Projections suggest gains through last year's $8.24-a-bushel
high to at least $8.58-8.60, if not a full move to $8.70-9.72 a bushel into
'Vulnerable to selling
The comments contrast with a more gloomy outlook from Chicago
broker RJ O'Brien, which cautioned that "while the marked decline in March corn
futures this week suggests that a potentially bearish Feb crop report for corn
is fully discounted", there were reasons to expect a further decline.
"We would note that charts are turning over, that current prices
for December corn futures reflect an unusually low 2013 US corn yield
[expectation], and that new corn longs, evidenced by the 100,000-contract gain in
open interest since January 1, are vulnerable to further selling pressure."
At Iowa-based US Commodities, Don Roose, the broker's
president, said that the influence of this Wasde may be overshadowed by the
latest forecasts for weather in South American, where dryness is eroding hopes
for Argentine crops.
"This does not look like being a big report, as far as
Wasdes go," he told Agrimoney.com.
"We will probably pretty quickly move on to trading the South
American weather outlook."
'As bad as the
At Chicago-based Rice Dairy, feed grains analyst Jerry Gidel
cautioned against expecting the Wasde to factor in a reduced estimate for
ethanol production, without further evidence of reduced demand.
Forecasts for Wasde wheat data, 2012-13m. range of estimates, and (current figure)
US year-end stocks: 727m bushels, 699m-783m bushels, (716m bushels)
Global year-end stocks: 175.52m tonnes, 166.7m-178.2m tonnes, (176.64m tonnes)
Sources: USDA, ThomsonReuters
Exports, while poor, were only lagging "63m-65m bushels
behind the pace" expected for 2012-13, which may also make the USDA reluctant
to act for now.
The USDA's biggest quandary may be in soybeans, and how to
tackle supply estimates given the unexpectedly strong exports, which have
topped 1.0bn bushels – nearly 75% of the total expected for the whole of
2012-13 – just five months into the marketing year.
"We may not have enough bushels left for ourselves," he told
"We may have got as bad as the Russians, and have to buy
some back because we have sold too much."