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Deere issues mixed message on corn price outlook

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Deere & Co offered a mixed message on the outlook for corn prices, ditching ideas of a rise in values next season, but flagging the potential for lower plantings to spark a recovery in values.

The farm equipment maker in its formal forecasts, nudged higher expectations for corn and soybean prices for 2013-14, but cut hopes for soybean values next season by $0.50 a bushel to $10.50 a bushel.

That is a level last seen in a front Chicago futures contract since October 2010.

"We are seeing corn acres come down, and much of that is moving into soybean acres," Tony Huegel, director of Deere investor relations, said.

"So if you see that shift into soybeans and good growing conditions, which is a big assumption, then you're going to see some drawdown in soybean prices as a result of that."

'Prices could rebound'

However, while Deere in its published forecasts also ditched expectations of a rose in corn prices in 2014-15, seeing them fall $0.20 a bushel to a season average of $4.25 a bushel, the group held out the potential for a better performance.

Although world corn production "was strong in 2013 due to good weather globally", the grain's stocks-to-use ratio, a key pricing metric, is expected to rise by only about 1 percentage point, investor communications manager Susan Karlix said.

"In addition, global corn plantings will likely decrease in 2014. In fact, our Deere estimate expects approximately 4m acres of corn to shift to soybeans in the next planting season in the US."

Furthermore, looking at the former Soviet Union, Ukraine, which has risen to become the world's third-ranked corn exporter, "is also expected to cut back on corn planted area by about 20%," she said.

"If 2014 brings unfavourable growing conditions in any part of the world - the US, Brazil, and Argentina in particular - corn stocks-to-use would fall and commodity prices could rebound."

Sowings to soar instead?

Deere's estimate for a large drop in Ukraine sowings contrasts sharply with talk from inside the country of a rise of 6% in plantings this year.

Ben Bradbury at US broker Benson Quinn Commodities said: "This would see Ukrainian farmers plant 5.2m hectares to corn this year.

"The increased acreage could lead to additional output of up to 2m tonnes," on top of a 2013 harvest pegged by the US Department of Agriculture at a record 30.9m tonnes.

Sowings forecasts

Deere pegged US corn sowings this year at 91.5m acres, down 3.9m acres year on year, and lower than forecasts from Informa Economics and Morgan Stanley, but still the fifth largest area since World War II.

Soybean plantings were pegged at 80.0m acres, a record high, but also below Informa's estimate, of 81.3m acres.

By Agrimoney.com

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