Will world corn stocks build further, after being
replenished by last year's record US crop?
Prospects for the next two rounds of the world's top two
harvests have diverged.
Downbeat ideas for Brazil's safrinha crop look increasingly premature,
given a revival in domestic prices, thanks to a weak real and the downgrade to
the US crop last week.
But incentives for US growers to plant this year may be
going into retreat, with the Federal Reserve cautioning that farmers face
losses on the grain.
In Brazil, a revival in prices - up 2.9% nationwide over the
past month in US dollar terms, according to research group Cepea - has pushed
values just above production costs in some key growing areas.
In the major safrinha corn state of Mato Grosso prices have
risen by 8.8% to R$15.25 a sack, equivalent to about $3.00 a bushel, creating scope
for some slim profits for some growers.
"If these prices are sustained over the next few weeks, some
farmers in the state may revise their previous decision to reduce their 2013-14
safrinha corn acreage," Michael Cordonnier, the respected crop scout, said.
Agroconsult believes that growers have already changed their
minds and decided on widespread safrinha sowings – forecasting a 2% rise to 9.2m
hectares in plantings.
The consultancy cited talk of a pick-up in demand for corn
seed by Brazil's farmers, who have a habit of sowing even if presented only
with slim margins.
Imea, the Mato Grosso institute of agricultural economics,
had forecast a drop of some 500,000 hectares to 3.2m hectares, in safrinha corn
acres in the state, with output expected to drop by 24% to 17.0m tonnes.
US Department of Agriculture staff in Brasilia have forecast some switch from corn to cotton and wheat, with other observers seeing soybean crops following on from soybean crops.
However, the idea of raised Brazilian sowings has reached US grain
"Stronger-than-expected mid-January corn prices may spawn a
higher-than-expected Brazilian safrinha corn area," Richard Feltes at Chicago-based
broker RJ O'Brien said.
Idesa for US corn sowings this spring had improved too after
Friday's 5% jump in corn prices, which rendered the grain a better bet than soybeans,
its main rival in spring planting programmes.
The ratio between Chicago's November 2014 soybean contract
and December 2014 corn lot, viewed as a key indicator of the appeal of both
crops to farmers, had fallen from approaching 2.6: 1 last month to 2.40: 1,
indicating the revived appeal of the grain against the oilseed.
However, the ratio had recovered to 2.48:1 as of Thursday, putting
soybeans firmly back in the ascendancy – a trend picked up by the US Federal Reserve
in its so-called "beige book" of economic observations, the latest edition revealed
"Current prices for corn will not cover expected costs for
2014 production, whereas soybean prices would," the Fed's Chicago bank, which
covers key areas of the Midwest, said.
"This may lead to increased soybean planting in the spring."
The prospects for sowings of these two crops are viewed as
particularly sensitive to prices, with the safrinha crop the main source for
Brazilian exports, and the US the top grower and shipper of the grain.