Agri Commodity Markets Research
Agri Commodity Markets Research
Bullish Scenario Confirmed
Rabobank’s outlook based on USDA’s 31 March 2011 Prospective Plantings and Grain Stocks reports: ? Corn – Bullish ? Soybeans – Bullish ? Wheat – Neutral ? Cotton – Bullish
The USDA found more acres than expected in the 2011 prospective plantings report which could result in large crops in the fall, while the grain stocks report revealed demand which exceeded market expectations in the last quarter, suggesting old crop fundamental tightness will continue into the next season. Judging by positioning ahead of the release, the market had expected the reports to be bullish soybeans and bearish corn and cotton, with wheat neutral. While planted area was higher for corn and only modestly lower for soybeans, the low stocks reported for corn and soybeans were a surprise and will likely support prices as the planting campaign begins. The cotton acreage expected in the report is not enough to alleviate supply concerns as demand will likely grow next season and razor?thin ending stocks are forecast, all supporting new crop values. Prospective wheat plantings were larger than anticipated, as were the stocks. The reports suggest that while farmers are responding to the higher prices in the market by planting post to post, low supply will remain a concern. Ending stocks will likely be historically low for 10/11 keeping old crop values high. The new crops are not expected to replenish inventories to any meaningful extent keeping prices in the new season high. In our view, the risk production premium for new crops and the need to ration demand of dwindling old crop supplies will maintain and increase prices, with corn and cotton leading the way as we move into the weather market. Table 1: USDA 31 March 2011 Prospective Plantings and Grain Stocks Reports Summary
Planting Intentions
USDA USDA Mar Outlook 31 92.2 76.6 58.0 41.2 16.8 12.6 12.80 92.0 78.0 57.0
2010
Trade Estimates Avg Low High
Quarterly Stocks Corn Soybeans All Wheat
USDA Mar 31 6.52 1.25 1.42
2010
Trade Estimates Avg 6.69 1.29 1.40 Low 6.55 1.23 1.34 High 6.80 1.37 1.49
11/12 Acreage (Mn Acres) Corn Soybeans Wheat Winter Wheat Spring Wheat Cotton 88.2 77.7 53.6 13.7 11.0 91.8 76.8 57.2 13.7 13.2 90.4 74.9 56.5 13.0 12.8 93.0 78.5 58.4 14.3 13.5
Mar 1 Stocks (Mn Bushels) 7.69 1.27 1.36
Source: USDA, Rabobank
Area planted to the four main row crops will increase by 9.2 million acres YOY according to the prospective plantings report, up 4% from the previous season and the highest since 1982. All crops saw an increase in prospective acreage, except for soybeans, which will only fall by 795,000 acres YOY. The acreage to be planted to corn, soybeans, and wheat was higher than the average market expectations, while it was much lower for cotton. Given the long season ahead and the risk of weather disruptions along with low inventories, the outlook for the crops remains bullish. The upside risk is considerable, and if crop potential is threatened by weather we would expect prices to visit new records.
Luke Chandler Global Head
+44 20 7664 9514 [email protected]
Keith Flury Senior Commodity Analyst
+44 20 7664 9676 [email protected]
Erin FitzPatrick Commodity Analyst
+44 20 7664 9540 [email protected]
01 April 2011
Food & Agribusiness Research and Advisory
Agri Commodity Markets Research
Corn plantings in 2011 are expected to reach 92.18 million acres, up 5% from the previous season and the second largest area — behind 93.52 million acres in 2007 — since 1944. While the increase in area could be seen as bearish, the figure was overshadowed by the shock in the grain stocks report, and the corn market in Chicago moved up the daily limit at the opening bell. With area up, the US could reap a record crop if the estimated yield of 160 bushels an acre is realized. But even with a record crop in 2011, we forecast stocks to use will only increase to 6.9%, the second lowest since 95/96. We see a need to ration demand for the remaining old crop corn and think prices will remain elevated into the new season. Cotton area is expected to reach 12.6 million acres, up from 10.9 million acres in 2010 and the highest since 2006, when 15.3 million acres were planted. Cotton acreage was lower than expected and, as US ending stocks are forecast to be at a record low 1.9 million bales, the fundamentals of both the old and new crop look very tight. We expect the level of abandonment to be 9% in 2011, near the long term average, and up from a very low 3.5% in 2010. With this in mind, we forecast a 2011 crop of 20.3 million bales. Demand for the new crop has been very strong, with almost 5 million bales sold for export already, and as the cotton area in the South is very dry just ahead of planting we expect prices to remain supported, with little reason to decrease in the short term.
Figure 1: Total plantings for the four crops are the most since 1982 and 4% higher than the previous season
245 240 235 230 225 220
1.4
Figure 2: Prices of the four row crops have increased since June, but corn and cotton are clear winners
2.8 2.6 2.4
Million Acres
2.2 2.0 1.8 1.6
215 210
June 2010=1
1.2 1.0 0.8 Jun 10
Aug 10 Corn
Oct 10 Soybean
Dec 10 Wheat Cotton
Feb 11
Total Corn, Wheat, Soybean, Cotton Plantings
Source: USDA, Rabobank
Source: Bloomberg, Rabobank
Farmers are expected to grow 58.0 million acres of wheat in 2011, up from 53.6 million acres the previous season. Wheat remains the best supplied of the major grains, and with increasing land the US should see an increase in production from last year’s 2.2 billion bushels. Current dry weather in the Plains could crimp yields however. Spring wheat acres were modestly higher than expected at 14.4 million acres, up from 13.7 million the previous season. The premium for the higher protein spring has been wide relative to lower protein wheat due to a shortage internationally which was caused by negative weather in the previous season. Soybeans planting intentions for 2011 are 76.6 million acres, down from 77.4 million acres — the third largest on record. Despite USDA’s forecast for soybean stocks?to?use falling to a 30?year low, soybean area is likely to lose area to corn given the higher returns. While USDA’s total planted area reported in March is historically quite accurate, the actual area planted to each crop tends to fluctuate driven largely by weather. In 6 of the last 7 years USDA reported June soybean acres lower than was reported in the March prospective plantings report. On average, soybean acres planted are 474,000 lower than the June report.
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Quarterly stocks of soybeans and corn declined more than expected, adding further bullish sentiment to prices. The 1 March corn stocks were reported at the lowest level since 06/07 and 3% below trade expectations at 6.52 billion bushels. Soybean stocks were 2% below average trade estimates at 1.25 billion bushels and the lowest since 03/04. The USDA reported wheat stocks increased 5% YOY to 1.42 billion bushels — 1% higher than the trade estimate. Corn usage in the first half of the 10/11 marketing year has accelerated at an unsustainable pace and must be reduced through higher prices in the second half. Corn demand in Q2 reached a historically high 3.52 billion bushels despite record high Q2 prices. This brings total corn demand for the first half of 10/11 to 7.6 billion bushels — an 8% YOY increase. The USDA forecasts demand growth for the entire marketing year will grow only 3.3%, which would require total corn demand to decline YOY in the next two quarters.
Figure 3: Corn demand in Q2 reaches a record high driven by strong demand for feed and ethanol
3.5 3.0 2.5
Billion bushels
Figure 4: Feed and residual use in 1H 10/11 increased the largest amount since 07/08
400 300
YOY change (million bushels)
200 100 0 -100 -200 -300 -400 -500
2.0 1.5 1.0 0.5 0.0 04/05 Imports 05/06 06/07 07/08 08/09 Exports 09/10 10/11e Food, Seed, Industrial Feed, Residual
04/05
05/06
06/07 Q1 Q2
07/08 Q3 Q4
08/09
09/10
10/11e
Source: USDA, Rabobank
Source: USDA, Rabobank
Strong demand has been driven by positive end?user margins in the livestock and poultry sector as well as ethanol. We estimate feed and residual use for Q2 increased 15% YOY to 1.56 billion bushels. Ethanol production remains on pace to exceed USDA’s forecast by 136 million bushels in 10/11. Rising energy prices have resulted in ethanol’s competitiveness to gasoline to rise to a 9?month high. After 5 consecutive weeks of declining ethanol production, the 5% decline in corn prices in mid?March incentivised a rebound in ethanol production. Similarly, margins for livestock and poultry producers increased in recent months due to the pullback in corn prices and record?high livestock prices. This has supported a YOY increase in chick placements and egg sets which are 6% higher YTD. Hogs kept for breeding saw the first quarterly increase in Q2 since 08/09 and February cattle on feed increased 5% YOY to 11.4 million head. Soybean demand rationing was evident in the quarterly stocks report, but further declines are needed in order to offset the YOY decline in planted area. USDA reported soybean demand in Q2 declined 4% YOY to 1.03 billion bushels as high prices slowed consumption. Soybean crush for the first half of 10/11 fell 7% YOY, indicating the USDA’s forecast for total year crush decline of only 5.5% may be optimistic. Soybean crush fell to 129.4 million bushels in February — the lowest February crush since 2003. Total US soybean export commitments stand at 14.8 million bushels, 93% of the USDA’s forecast. However, only 79% has been shipped, while last year at the same point it was 82%. There is a high risk that export sales will be cancelled as improved South American harvesting conditions could displace US exports. This will depend largely on demand from China, the world’s largest soybean importer. China’s soybean imports in February fell 21% YOY to 2.3 million tonnes as their domestic crush margins have become negative. We believe this signifies China’s demand in the second half of 10/11 will be lower than USDA’s 57 million tonne forecast, therefore lowering US soybean exports.
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Agri Commodity Markets Research
Figure 5: Second quarter soybean demand declined 4% YOY
1200 1000 800
Million bushels
Figure 6: Soybean crush fell 7% YOY in the first half of 10/11, indicating USDA’s forecast for the year may be too high
180 160 140 120
Million busels
600 400 200 0 -200 04/05 Imports 05/06 Crush 06/07 07/08 08/09 09/10 10/11e Exports Feed, Seed, Residual
100 80 60 40 20 0 Sep Oct 08/09 Nov 09/10 Dec 10/11 Jan Feb
Source: Bloomberg, Rabobank
Source: Bloomberg, Rabobank
Wheat stocks were reported slightly above expectations and further confirm US wheat exports will increase. Quarterly wheat stocks increased 5% YOY to 1.42 bushels — the highest level since 98/99. While this number alone is bearish for wheat, we expect bullish sentiment from corn to be supportive to wheat prices. In many cash markets, wheat is now a competitive feed source relative to corn. The high level of US stocks is also likely to cause CBOT wheat prices to trade at a discount to Matif wheat as import demand must shift away from the EU to the US. Wheat export shipments are only on pace to reach 1.11 billion bushels versus USDA’s 1.28 million bushel forecast. Given the higher than expected quarterly stocks, we expect US wheat exports will increase for the remainder of the marketing year.
Figure 7: Wheat export shipments must increase significantly for the remainder of 10/11 to reach USDA’s forecast.
1.2 1.0 0.8
USd/bushel
Figure 8: Rising corn prices will support wheat prices as the spread has fallen to multi?year lows
1000 900 800 700 600 500 400 300 200
Million tonnes
0.6 0.4 0.2 0.0
100 0 Jan Mar May Jul 09 09 09 09
Exports Weekly Exports Required to Reach Forecast
Sep Nov Jan Mar May Jul 09 09 10 10 10 10 CBOT Corn
Sep Nov Jan Mar 10 10 11 11
Spread
CBOT wheat
Source: USDA, Rabobank
Source: Bloomberg, Rabobank
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Agri Commodity Markets Research
Global & US Corn Balance Global Corn Supply & Demand (1000 Ha/1000 Mt)
Beginning Stocks Production MY Imports Total Supply MY Exports Feed Consumption FSI Consumption Total Consumption Total Usage Surplus Deficit Ending Stocks Stocks/Usage
08/09
131,360 798,410 82,560 1,012,330 84,480 479,140 302,810 781,950 866,430 14,540 147,820 18.9%
09/10
147,820 812,380 89,790 1,049,990 96,890 482,700 332,960 815,660 912,550 ?10,380 144,540 17.7%
USDA 10/11(f)
144,540 813,780 90,900 1,049,220 90,130 493,020 342,160 835,180 925,310 ?20,630 123,140 14.7%
Rabobank 10/11(f)
145,156 809,369 91,153 1,045,678 86,693 492,927 346,815 839,741 926,434 ?30,373 119,244 14.2%
Rabobank 11/12(f)
US Corn Supply & Demand (Mln Acres/Mln Bu)
Beginning Stocks Area Planted Area Harvested Yield Production MY Imports Total Supply MY Exports Feed Consumption FSI Consumption Ethanol Usage Total Consumption Total Usage Surplus Deficit Ending Stocks Stocks/Usage
08/09
1,624 86.0 78.6 153.9 12,092 14 13,729 1,849 5,182 5,025 3,709 10,207 12,056 50 1,673 13.9%
09/10
1,673 86.4 79.5 164.7 13,092 8 14,774 1,987 5,140 5,939 4,568 11,079 13,066 34 1,708 13.1%
USDA 10/11(f)
1,708 88.2 81.4 152.8 12,447 20 14,175 1,950 5,200 6,350 4,950 11,550 13,500 ?1,033 675 5.0%
Rabobank 10/11(f)
1,708 88.2 81.4 152.8 12,438 20 14,166 1,950 5,100 6,400 5,000 11,500 13,450 ?992 716 5.3%
Rabobank 11/12(f)
716 92.0 84.6 160.0 13,536 15 14,267 1,950 5,050 6,350 4,950 11,400 13,350 201 917 6.9%
Global Corn Ending Stocks & Stocks-to-use
200 38.0%
US Corn Ending Stocks & Stocks-to-use
2.5 30%
180
33.0%
2.0
25%
Billion bushels
Stocks/Usage
1.5 15% 1.0 10% 0.5
140
23.0%
120
18.0%
100
13.0%
5%
80 91/92 Ending Stocks
8.0% 10/11 (f) Stocks/Usage
0.0 91/92 Ending Stocks
0% 11/12(f) Stocks/Usage
So urce: USDA , Rabo bank
Stocks/Usage
Million tonnes
160
28.0%
20%
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Agri Commodity Markets Research
Global & US Soybean Balance Global Soybean Supply & Demand (1000 Ha/1000 Mt) 08/09
Beginning Stocks Production MY Imports Total Supply MY Exports Crush Seed/Feed/Residual Total Consumption Total Usage Surplus/Deficit Ending Stocks Stocks/Usage 51,420 211,960 77,180 340,560 76,850 192,910 28,220 221,130 297,980 ?8,840 42,580 19.3%
09/10
42,580 260,270 87,440 390,290 92,740 209,510 29,040 238,550 331,290 16,420 59,000 24.7%
USDA 10/11(f)
59,000 258,400 95,790 413,190 98,260 226,480 30,130 256,610 354,870 ?680 58,330 22.7%
Rabobank 10/11(f)
58,997 256,104 88,819 403,920 94,081 222,244 29,648 251,892 345,974 ?1,050 57,947 23.0%
Rabobank 11/12(f)
US Soybean Supply & Demand (Mln Acres/Mln Bu)
Beginning Stocks Planted Area Area Harvested Yield Production MY Imports Total Supply MY Exports Crush Seed/Residual Total Consumption Total Usage Net Trade Surplus/Deficit Ending Stocks Stocks/Usage
08/09
205 76 74.7 39.7 2,967 13 3,185 1,279 1,662 106 1,768 3,047 1,266 ?67 138 4.5%
09/10
138 78 76.4 44.0 3,359 15 3,512 1,501 1,752 108 1,860 3,361 1,486 13 151 4.5%
USDA 10/11(f)
151 77 76.6 43.5 3,329 15 3,495 1,590 1,655 110 1,765 3,355 1,575 ?11 140 4.2%
Rabobank 10/11(f)
151 77 76.6 43.5 3,329 15 3,495 1,580 1,650 117 1,767 3,347 1,565 ?3 148 4.4%
Rabobank 11/12(f)
148 77 76.2 43.0 3,314 15 3,477 1,580 1,620 117 1,737 3,317 1,565 12 160 4.8%
Global Soybean Ending Stocks & Stocks-to-use
70 60 50 30%
US Soybean Ending Stocks & Stocks-to-use
600 20%
25%
500
Million bushels
40 15% 30 20 10 0 91/92 Ending Stocks 10%
Stocks/Usage
Million tonnes
300
10%
200 5%
5%
100
0% 10/11(f) Stocks/Usage
0 91/92 Ending Stocks
0% 11/12(f) Stocks/Usage
So urce: USDA , Rabo bank
Stocks/Usage
90 16
90
20% 18 400
91 19
15%
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Agri Commodity Markets Research
Global & US Wheat Balance Global Wheat Supply & Demand (1000 Ha/1000 Mt)
Beginning Stocks Production MY Imports Total Supply MY Exports Feed Consumption FSI Consumption Total Consumption Total Usage Surplus Deficit Ending Stocks Stocks/Usage
08/09
124,780 684,160 136,930 945,870 143,660 117,940 523,760 641,700 785,360 35,730 167,230 26.1%
09/10
167,230 682,590 133,470 983,290 135,800 116,630 535,870 652,500 788,300 27,760 197,320 30.2%
USDA 10/11(f)
197,320 647,600 121,670 966,590 123,060 122,500 540,520 663,020 786,080 ?16,810 181,900 27.4%
Rabobank 10/11(f)
196,963 638,635 123,280 958,878 119,354 125,887 543,337 669,224 788,578 ?30,589 170,300 21.6%
Rabobank 11/12(f)
US Wheat Supply & Demand (Mln Acres/Mln Bu)
Beginning Stocks Planted Area Area Harvested Yield Production MY Imports Prod. & Imports Total Supply MY Exports Food Seed Feed/Residual Total Consumption Total Usage Surplus/Deficit Ending Stocks Stocks/Usage
08/09
306 63.2 55.7 44.9 2,499 127 2,626 2,932 1,015 927 78 255 1,260 2,275 351 657 28.9%
09/10
657 59.2 49.9 44.5 2,218 119 2,337 2,993 881 917 69 150 1,137 2,018 319 976 48.4%
USDA 10/11(f)
976 53.6 47.6 46.4 2,208 110 2,318 3,294 1,275 930 76 170 1,176 2,451 ?133 843 34.4%
Rabobank 10/11(f)
976 53.6 47.6 46.4 2,208 110 2,318 3,294 1,300 930 76 170 1,176 2,476 ?158 818 33.0%
Rabobank 11/12(f)
818 56.6 50.2 44.0 2,207 110 2,317 3,135 1,300 950 76 190 1,216 2,516 ?199 619 24.6%
Global Wheat Ending Stocks & Stocks-to-use
220 980 200 180 33% 0.33
US Wheat Ending Stocks & Stocks-to-use
1,200 0.53 0.48
880 780
28% 0.28
1,000 0.43
Stocks/Usage Million bushels
Stocks/Usage
Million tonnes
160 580 140 480 120 100
23% 0.23
0.33 600 0.28 400 0.23 0.18 200 0.13
18% 0.18
380 280 180
13% 0.13
80 80 91/92 91/92
8% 0.08 10/11 10/11 (f) (f)
0 91/92 Ending Stocks
0.08 11/12(f) Stocks/Usage
Ending Stocks Ending Stocks
Stocks/Usage Stocks/Usage
So urce: USDA , Rabo bank
Stocks/Usage
Million tonnes
680
800
0.38
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Agri Commodity Markets Research
Global & US Cotton Balance Global Cotton Supply & Demand (1000 Ha/1000 480 lb bales)
Beginning Stocks Production MY Imports Total Supply MY Exports Loss Use Total Consumption Total Usage Surplus Deficit Ending Stocks Stocks/Usage
08/09
60,730 107,100 30,140 197,970 30,070 ?2,680 110,070 107,390 137,460 ?220 60,520 56.4%
09/10
60,520 101,340 35,980 197,840 35,550 ?70 118,520 118,450 154,000 ?16,680 43,840 37.0%
USDA 10/11(f)
43,840 114,950 38,590 197,380 38,580 ?140 116,610 116,470 155,050 ?1,510 42,330 36.3%
Rabobank 10/11(f)
43,845 111,045 39,500 194,390 39,500 ?136 117,505 117,369 156,869 ?6,324 37,521 32.0%
Rabobank 11/12(f)
37,521 128,315 42,000 207,836 42,000 ?100 122,816 122,716 164,716 5,599 43,120 35.1%
US Cotton Supply & Demand (Mln Acres/Mln 480 lb bales)
Beginning Stocks Planted Area Area Harvested Yield (lb/Acre) Production Total Supply MY Exports Loss Use Total Consumption Total Usage Net Trade Surplus/Deficit Ending Stocks Stocks/Usage
08/09
10.05 9.47 7.57 813 12.82 22.87 13.26 ?0.32 3.59 3.27 16.85 13.26 ?4.03 6.34 37.6%
09/10
6.34 9.15 7.53 777 12.19 18.53 12.04 0.08 3.46 3.54 15.50 12.04 ?3.31 2.95 19.0%
USDA 10/11(f)
2.95 10.97 10.71 821 18.32 21.27 15.75 0.02 3.60 3.62 19.35 15.74 ?1.02 1.90 9.8%
Rabobank 10/11(f)
3.11 10.97 10.77 811 18.20 21.32 16.00 ?0.02 3.60 3.58 19.58 15.99 ?1.37 1.74 8.9%
Rabobank 11/12(f)
1.74 12.80 11.70 833 20.30 22.74 16.10 ?0.06 3.50 3.44 19.54 16.10 1.46 3.20 16.4%
Global Cotton Ending Stocks & Stocks-to-use
70 60 50 70% 60% 50%
US Cotton Ending Stocks & Stocks-to-use
12 70% 60% 50% 40% 6 30% 4 20% 10% 0% 11/12 (f) Ending Stocks Stocks/Usage
10
Stocks / usage
40 30 20 10 0 91/92 Ending Stocks
40% 30% 20% 10% 0% 11/12 (f) Stocks/Usage
2
0 91/92
So urce: USDA , Rabo bank
Stocks / usage
Million tonnes
Million tonnes
8
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Agri Commodity Markets Research
Agri Commodity Markets Research (ACMR) Luke Chandler Global Head +44 20 7664 9514 [email protected] Keith Flury Senior Commodity Analyst +44 20 7664 9676 [email protected] Erin FitzPatrick Commodity Analyst +44 20 7664 9540 [email protected] Rabobank Food & Agribusiness Research and Advisory www.rabotransact.com
Global Financial Markets Corporate sales contacts: ASIA?Brandon Ma +852 2103 2688 [email protected] AUSTRALIA?Terry Allom +61 2 8115 3103 [email protected] EUROPE?Martijn Sorber +31 30 216 9447 [email protected] BRAZIL?Sergio Nakashima +55 11 5503 7150 [email protected] US?Bruce King +1 212 808 6908 [email protected] MEXICO?Neil Williamson +1 212 808 6966 [email protected] CHILE?Enzo Folch +56 2 8730332 [email protected]
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01 April 2011
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doc_994292326.pdf
Agri Commodity Markets Research
Bullish Scenario Confirmed
Rabobank’s outlook based on USDA’s 31 March 2011 Prospective Plantings and Grain Stocks reports: ? Corn – Bullish ? Soybeans – Bullish ? Wheat – Neutral ? Cotton – Bullish
The USDA found more acres than expected in the 2011 prospective plantings report which could result in large crops in the fall, while the grain stocks report revealed demand which exceeded market expectations in the last quarter, suggesting old crop fundamental tightness will continue into the next season. Judging by positioning ahead of the release, the market had expected the reports to be bullish soybeans and bearish corn and cotton, with wheat neutral. While planted area was higher for corn and only modestly lower for soybeans, the low stocks reported for corn and soybeans were a surprise and will likely support prices as the planting campaign begins. The cotton acreage expected in the report is not enough to alleviate supply concerns as demand will likely grow next season and razor?thin ending stocks are forecast, all supporting new crop values. Prospective wheat plantings were larger than anticipated, as were the stocks. The reports suggest that while farmers are responding to the higher prices in the market by planting post to post, low supply will remain a concern. Ending stocks will likely be historically low for 10/11 keeping old crop values high. The new crops are not expected to replenish inventories to any meaningful extent keeping prices in the new season high. In our view, the risk production premium for new crops and the need to ration demand of dwindling old crop supplies will maintain and increase prices, with corn and cotton leading the way as we move into the weather market. Table 1: USDA 31 March 2011 Prospective Plantings and Grain Stocks Reports Summary
Planting Intentions
USDA USDA Mar Outlook 31 92.2 76.6 58.0 41.2 16.8 12.6 12.80 92.0 78.0 57.0
2010
Trade Estimates Avg Low High
Quarterly Stocks Corn Soybeans All Wheat
USDA Mar 31 6.52 1.25 1.42
2010
Trade Estimates Avg 6.69 1.29 1.40 Low 6.55 1.23 1.34 High 6.80 1.37 1.49
11/12 Acreage (Mn Acres) Corn Soybeans Wheat Winter Wheat Spring Wheat Cotton 88.2 77.7 53.6 13.7 11.0 91.8 76.8 57.2 13.7 13.2 90.4 74.9 56.5 13.0 12.8 93.0 78.5 58.4 14.3 13.5
Mar 1 Stocks (Mn Bushels) 7.69 1.27 1.36
Source: USDA, Rabobank
Area planted to the four main row crops will increase by 9.2 million acres YOY according to the prospective plantings report, up 4% from the previous season and the highest since 1982. All crops saw an increase in prospective acreage, except for soybeans, which will only fall by 795,000 acres YOY. The acreage to be planted to corn, soybeans, and wheat was higher than the average market expectations, while it was much lower for cotton. Given the long season ahead and the risk of weather disruptions along with low inventories, the outlook for the crops remains bullish. The upside risk is considerable, and if crop potential is threatened by weather we would expect prices to visit new records.
Luke Chandler Global Head
+44 20 7664 9514 [email protected]
Keith Flury Senior Commodity Analyst
+44 20 7664 9676 [email protected]
Erin FitzPatrick Commodity Analyst
+44 20 7664 9540 [email protected]
01 April 2011
Food & Agribusiness Research and Advisory
Agri Commodity Markets Research
Corn plantings in 2011 are expected to reach 92.18 million acres, up 5% from the previous season and the second largest area — behind 93.52 million acres in 2007 — since 1944. While the increase in area could be seen as bearish, the figure was overshadowed by the shock in the grain stocks report, and the corn market in Chicago moved up the daily limit at the opening bell. With area up, the US could reap a record crop if the estimated yield of 160 bushels an acre is realized. But even with a record crop in 2011, we forecast stocks to use will only increase to 6.9%, the second lowest since 95/96. We see a need to ration demand for the remaining old crop corn and think prices will remain elevated into the new season. Cotton area is expected to reach 12.6 million acres, up from 10.9 million acres in 2010 and the highest since 2006, when 15.3 million acres were planted. Cotton acreage was lower than expected and, as US ending stocks are forecast to be at a record low 1.9 million bales, the fundamentals of both the old and new crop look very tight. We expect the level of abandonment to be 9% in 2011, near the long term average, and up from a very low 3.5% in 2010. With this in mind, we forecast a 2011 crop of 20.3 million bales. Demand for the new crop has been very strong, with almost 5 million bales sold for export already, and as the cotton area in the South is very dry just ahead of planting we expect prices to remain supported, with little reason to decrease in the short term.
Figure 1: Total plantings for the four crops are the most since 1982 and 4% higher than the previous season
245 240 235 230 225 220
1.4
Figure 2: Prices of the four row crops have increased since June, but corn and cotton are clear winners
2.8 2.6 2.4
Million Acres
2.2 2.0 1.8 1.6
215 210
June 2010=1
1.2 1.0 0.8 Jun 10
Aug 10 Corn
Oct 10 Soybean
Dec 10 Wheat Cotton
Feb 11
Total Corn, Wheat, Soybean, Cotton Plantings
Source: USDA, Rabobank
Source: Bloomberg, Rabobank
Farmers are expected to grow 58.0 million acres of wheat in 2011, up from 53.6 million acres the previous season. Wheat remains the best supplied of the major grains, and with increasing land the US should see an increase in production from last year’s 2.2 billion bushels. Current dry weather in the Plains could crimp yields however. Spring wheat acres were modestly higher than expected at 14.4 million acres, up from 13.7 million the previous season. The premium for the higher protein spring has been wide relative to lower protein wheat due to a shortage internationally which was caused by negative weather in the previous season. Soybeans planting intentions for 2011 are 76.6 million acres, down from 77.4 million acres — the third largest on record. Despite USDA’s forecast for soybean stocks?to?use falling to a 30?year low, soybean area is likely to lose area to corn given the higher returns. While USDA’s total planted area reported in March is historically quite accurate, the actual area planted to each crop tends to fluctuate driven largely by weather. In 6 of the last 7 years USDA reported June soybean acres lower than was reported in the March prospective plantings report. On average, soybean acres planted are 474,000 lower than the June report.
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Agri Commodity Markets Research
Quarterly stocks of soybeans and corn declined more than expected, adding further bullish sentiment to prices. The 1 March corn stocks were reported at the lowest level since 06/07 and 3% below trade expectations at 6.52 billion bushels. Soybean stocks were 2% below average trade estimates at 1.25 billion bushels and the lowest since 03/04. The USDA reported wheat stocks increased 5% YOY to 1.42 billion bushels — 1% higher than the trade estimate. Corn usage in the first half of the 10/11 marketing year has accelerated at an unsustainable pace and must be reduced through higher prices in the second half. Corn demand in Q2 reached a historically high 3.52 billion bushels despite record high Q2 prices. This brings total corn demand for the first half of 10/11 to 7.6 billion bushels — an 8% YOY increase. The USDA forecasts demand growth for the entire marketing year will grow only 3.3%, which would require total corn demand to decline YOY in the next two quarters.
Figure 3: Corn demand in Q2 reaches a record high driven by strong demand for feed and ethanol
3.5 3.0 2.5
Billion bushels
Figure 4: Feed and residual use in 1H 10/11 increased the largest amount since 07/08
400 300
YOY change (million bushels)
200 100 0 -100 -200 -300 -400 -500
2.0 1.5 1.0 0.5 0.0 04/05 Imports 05/06 06/07 07/08 08/09 Exports 09/10 10/11e Food, Seed, Industrial Feed, Residual
04/05
05/06
06/07 Q1 Q2
07/08 Q3 Q4
08/09
09/10
10/11e
Source: USDA, Rabobank
Source: USDA, Rabobank
Strong demand has been driven by positive end?user margins in the livestock and poultry sector as well as ethanol. We estimate feed and residual use for Q2 increased 15% YOY to 1.56 billion bushels. Ethanol production remains on pace to exceed USDA’s forecast by 136 million bushels in 10/11. Rising energy prices have resulted in ethanol’s competitiveness to gasoline to rise to a 9?month high. After 5 consecutive weeks of declining ethanol production, the 5% decline in corn prices in mid?March incentivised a rebound in ethanol production. Similarly, margins for livestock and poultry producers increased in recent months due to the pullback in corn prices and record?high livestock prices. This has supported a YOY increase in chick placements and egg sets which are 6% higher YTD. Hogs kept for breeding saw the first quarterly increase in Q2 since 08/09 and February cattle on feed increased 5% YOY to 11.4 million head. Soybean demand rationing was evident in the quarterly stocks report, but further declines are needed in order to offset the YOY decline in planted area. USDA reported soybean demand in Q2 declined 4% YOY to 1.03 billion bushels as high prices slowed consumption. Soybean crush for the first half of 10/11 fell 7% YOY, indicating the USDA’s forecast for total year crush decline of only 5.5% may be optimistic. Soybean crush fell to 129.4 million bushels in February — the lowest February crush since 2003. Total US soybean export commitments stand at 14.8 million bushels, 93% of the USDA’s forecast. However, only 79% has been shipped, while last year at the same point it was 82%. There is a high risk that export sales will be cancelled as improved South American harvesting conditions could displace US exports. This will depend largely on demand from China, the world’s largest soybean importer. China’s soybean imports in February fell 21% YOY to 2.3 million tonnes as their domestic crush margins have become negative. We believe this signifies China’s demand in the second half of 10/11 will be lower than USDA’s 57 million tonne forecast, therefore lowering US soybean exports.
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Agri Commodity Markets Research
Figure 5: Second quarter soybean demand declined 4% YOY
1200 1000 800
Million bushels
Figure 6: Soybean crush fell 7% YOY in the first half of 10/11, indicating USDA’s forecast for the year may be too high
180 160 140 120
Million busels
600 400 200 0 -200 04/05 Imports 05/06 Crush 06/07 07/08 08/09 09/10 10/11e Exports Feed, Seed, Residual
100 80 60 40 20 0 Sep Oct 08/09 Nov 09/10 Dec 10/11 Jan Feb
Source: Bloomberg, Rabobank
Source: Bloomberg, Rabobank
Wheat stocks were reported slightly above expectations and further confirm US wheat exports will increase. Quarterly wheat stocks increased 5% YOY to 1.42 bushels — the highest level since 98/99. While this number alone is bearish for wheat, we expect bullish sentiment from corn to be supportive to wheat prices. In many cash markets, wheat is now a competitive feed source relative to corn. The high level of US stocks is also likely to cause CBOT wheat prices to trade at a discount to Matif wheat as import demand must shift away from the EU to the US. Wheat export shipments are only on pace to reach 1.11 billion bushels versus USDA’s 1.28 million bushel forecast. Given the higher than expected quarterly stocks, we expect US wheat exports will increase for the remainder of the marketing year.
Figure 7: Wheat export shipments must increase significantly for the remainder of 10/11 to reach USDA’s forecast.
1.2 1.0 0.8
USd/bushel
Figure 8: Rising corn prices will support wheat prices as the spread has fallen to multi?year lows
1000 900 800 700 600 500 400 300 200
Million tonnes
0.6 0.4 0.2 0.0
100 0 Jan Mar May Jul 09 09 09 09
Exports Weekly Exports Required to Reach Forecast
Sep Nov Jan Mar May Jul 09 09 10 10 10 10 CBOT Corn
Sep Nov Jan Mar 10 10 11 11
Spread
CBOT wheat
Source: USDA, Rabobank
Source: Bloomberg, Rabobank
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Agri Commodity Markets Research
Global & US Corn Balance Global Corn Supply & Demand (1000 Ha/1000 Mt)
Beginning Stocks Production MY Imports Total Supply MY Exports Feed Consumption FSI Consumption Total Consumption Total Usage Surplus Deficit Ending Stocks Stocks/Usage
08/09
131,360 798,410 82,560 1,012,330 84,480 479,140 302,810 781,950 866,430 14,540 147,820 18.9%
09/10
147,820 812,380 89,790 1,049,990 96,890 482,700 332,960 815,660 912,550 ?10,380 144,540 17.7%
USDA 10/11(f)
144,540 813,780 90,900 1,049,220 90,130 493,020 342,160 835,180 925,310 ?20,630 123,140 14.7%
Rabobank 10/11(f)
145,156 809,369 91,153 1,045,678 86,693 492,927 346,815 839,741 926,434 ?30,373 119,244 14.2%
Rabobank 11/12(f)
US Corn Supply & Demand (Mln Acres/Mln Bu)
Beginning Stocks Area Planted Area Harvested Yield Production MY Imports Total Supply MY Exports Feed Consumption FSI Consumption Ethanol Usage Total Consumption Total Usage Surplus Deficit Ending Stocks Stocks/Usage
08/09
1,624 86.0 78.6 153.9 12,092 14 13,729 1,849 5,182 5,025 3,709 10,207 12,056 50 1,673 13.9%
09/10
1,673 86.4 79.5 164.7 13,092 8 14,774 1,987 5,140 5,939 4,568 11,079 13,066 34 1,708 13.1%
USDA 10/11(f)
1,708 88.2 81.4 152.8 12,447 20 14,175 1,950 5,200 6,350 4,950 11,550 13,500 ?1,033 675 5.0%
Rabobank 10/11(f)
1,708 88.2 81.4 152.8 12,438 20 14,166 1,950 5,100 6,400 5,000 11,500 13,450 ?992 716 5.3%
Rabobank 11/12(f)
716 92.0 84.6 160.0 13,536 15 14,267 1,950 5,050 6,350 4,950 11,400 13,350 201 917 6.9%
Global Corn Ending Stocks & Stocks-to-use
200 38.0%
US Corn Ending Stocks & Stocks-to-use
2.5 30%
180
33.0%
2.0
25%
Billion bushels
Stocks/Usage
1.5 15% 1.0 10% 0.5
140
23.0%
120
18.0%
100
13.0%
5%
80 91/92 Ending Stocks
8.0% 10/11 (f) Stocks/Usage
0.0 91/92 Ending Stocks
0% 11/12(f) Stocks/Usage
So urce: USDA , Rabo bank
Stocks/Usage
Million tonnes
160
28.0%
20%
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Agri Commodity Markets Research
Global & US Soybean Balance Global Soybean Supply & Demand (1000 Ha/1000 Mt) 08/09
Beginning Stocks Production MY Imports Total Supply MY Exports Crush Seed/Feed/Residual Total Consumption Total Usage Surplus/Deficit Ending Stocks Stocks/Usage 51,420 211,960 77,180 340,560 76,850 192,910 28,220 221,130 297,980 ?8,840 42,580 19.3%
09/10
42,580 260,270 87,440 390,290 92,740 209,510 29,040 238,550 331,290 16,420 59,000 24.7%
USDA 10/11(f)
59,000 258,400 95,790 413,190 98,260 226,480 30,130 256,610 354,870 ?680 58,330 22.7%
Rabobank 10/11(f)
58,997 256,104 88,819 403,920 94,081 222,244 29,648 251,892 345,974 ?1,050 57,947 23.0%
Rabobank 11/12(f)
US Soybean Supply & Demand (Mln Acres/Mln Bu)
Beginning Stocks Planted Area Area Harvested Yield Production MY Imports Total Supply MY Exports Crush Seed/Residual Total Consumption Total Usage Net Trade Surplus/Deficit Ending Stocks Stocks/Usage
08/09
205 76 74.7 39.7 2,967 13 3,185 1,279 1,662 106 1,768 3,047 1,266 ?67 138 4.5%
09/10
138 78 76.4 44.0 3,359 15 3,512 1,501 1,752 108 1,860 3,361 1,486 13 151 4.5%
USDA 10/11(f)
151 77 76.6 43.5 3,329 15 3,495 1,590 1,655 110 1,765 3,355 1,575 ?11 140 4.2%
Rabobank 10/11(f)
151 77 76.6 43.5 3,329 15 3,495 1,580 1,650 117 1,767 3,347 1,565 ?3 148 4.4%
Rabobank 11/12(f)
148 77 76.2 43.0 3,314 15 3,477 1,580 1,620 117 1,737 3,317 1,565 12 160 4.8%
Global Soybean Ending Stocks & Stocks-to-use
70 60 50 30%
US Soybean Ending Stocks & Stocks-to-use
600 20%
25%
500
Million bushels
40 15% 30 20 10 0 91/92 Ending Stocks 10%
Stocks/Usage
Million tonnes
300
10%
200 5%
5%
100
0% 10/11(f) Stocks/Usage
0 91/92 Ending Stocks
0% 11/12(f) Stocks/Usage
So urce: USDA , Rabo bank
Stocks/Usage
90 16
90
20% 18 400
91 19
15%
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Agri Commodity Markets Research
Global & US Wheat Balance Global Wheat Supply & Demand (1000 Ha/1000 Mt)
Beginning Stocks Production MY Imports Total Supply MY Exports Feed Consumption FSI Consumption Total Consumption Total Usage Surplus Deficit Ending Stocks Stocks/Usage
08/09
124,780 684,160 136,930 945,870 143,660 117,940 523,760 641,700 785,360 35,730 167,230 26.1%
09/10
167,230 682,590 133,470 983,290 135,800 116,630 535,870 652,500 788,300 27,760 197,320 30.2%
USDA 10/11(f)
197,320 647,600 121,670 966,590 123,060 122,500 540,520 663,020 786,080 ?16,810 181,900 27.4%
Rabobank 10/11(f)
196,963 638,635 123,280 958,878 119,354 125,887 543,337 669,224 788,578 ?30,589 170,300 21.6%
Rabobank 11/12(f)
US Wheat Supply & Demand (Mln Acres/Mln Bu)
Beginning Stocks Planted Area Area Harvested Yield Production MY Imports Prod. & Imports Total Supply MY Exports Food Seed Feed/Residual Total Consumption Total Usage Surplus/Deficit Ending Stocks Stocks/Usage
08/09
306 63.2 55.7 44.9 2,499 127 2,626 2,932 1,015 927 78 255 1,260 2,275 351 657 28.9%
09/10
657 59.2 49.9 44.5 2,218 119 2,337 2,993 881 917 69 150 1,137 2,018 319 976 48.4%
USDA 10/11(f)
976 53.6 47.6 46.4 2,208 110 2,318 3,294 1,275 930 76 170 1,176 2,451 ?133 843 34.4%
Rabobank 10/11(f)
976 53.6 47.6 46.4 2,208 110 2,318 3,294 1,300 930 76 170 1,176 2,476 ?158 818 33.0%
Rabobank 11/12(f)
818 56.6 50.2 44.0 2,207 110 2,317 3,135 1,300 950 76 190 1,216 2,516 ?199 619 24.6%
Global Wheat Ending Stocks & Stocks-to-use
220 980 200 180 33% 0.33
US Wheat Ending Stocks & Stocks-to-use
1,200 0.53 0.48
880 780
28% 0.28
1,000 0.43
Stocks/Usage Million bushels
Stocks/Usage
Million tonnes
160 580 140 480 120 100
23% 0.23
0.33 600 0.28 400 0.23 0.18 200 0.13
18% 0.18
380 280 180
13% 0.13
80 80 91/92 91/92
8% 0.08 10/11 10/11 (f) (f)
0 91/92 Ending Stocks
0.08 11/12(f) Stocks/Usage
Ending Stocks Ending Stocks
Stocks/Usage Stocks/Usage
So urce: USDA , Rabo bank
Stocks/Usage
Million tonnes
680
800
0.38
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Agri Commodity Markets Research
Global & US Cotton Balance Global Cotton Supply & Demand (1000 Ha/1000 480 lb bales)
Beginning Stocks Production MY Imports Total Supply MY Exports Loss Use Total Consumption Total Usage Surplus Deficit Ending Stocks Stocks/Usage
08/09
60,730 107,100 30,140 197,970 30,070 ?2,680 110,070 107,390 137,460 ?220 60,520 56.4%
09/10
60,520 101,340 35,980 197,840 35,550 ?70 118,520 118,450 154,000 ?16,680 43,840 37.0%
USDA 10/11(f)
43,840 114,950 38,590 197,380 38,580 ?140 116,610 116,470 155,050 ?1,510 42,330 36.3%
Rabobank 10/11(f)
43,845 111,045 39,500 194,390 39,500 ?136 117,505 117,369 156,869 ?6,324 37,521 32.0%
Rabobank 11/12(f)
37,521 128,315 42,000 207,836 42,000 ?100 122,816 122,716 164,716 5,599 43,120 35.1%
US Cotton Supply & Demand (Mln Acres/Mln 480 lb bales)
Beginning Stocks Planted Area Area Harvested Yield (lb/Acre) Production Total Supply MY Exports Loss Use Total Consumption Total Usage Net Trade Surplus/Deficit Ending Stocks Stocks/Usage
08/09
10.05 9.47 7.57 813 12.82 22.87 13.26 ?0.32 3.59 3.27 16.85 13.26 ?4.03 6.34 37.6%
09/10
6.34 9.15 7.53 777 12.19 18.53 12.04 0.08 3.46 3.54 15.50 12.04 ?3.31 2.95 19.0%
USDA 10/11(f)
2.95 10.97 10.71 821 18.32 21.27 15.75 0.02 3.60 3.62 19.35 15.74 ?1.02 1.90 9.8%
Rabobank 10/11(f)
3.11 10.97 10.77 811 18.20 21.32 16.00 ?0.02 3.60 3.58 19.58 15.99 ?1.37 1.74 8.9%
Rabobank 11/12(f)
1.74 12.80 11.70 833 20.30 22.74 16.10 ?0.06 3.50 3.44 19.54 16.10 1.46 3.20 16.4%
Global Cotton Ending Stocks & Stocks-to-use
70 60 50 70% 60% 50%
US Cotton Ending Stocks & Stocks-to-use
12 70% 60% 50% 40% 6 30% 4 20% 10% 0% 11/12 (f) Ending Stocks Stocks/Usage
10
Stocks / usage
40 30 20 10 0 91/92 Ending Stocks
40% 30% 20% 10% 0% 11/12 (f) Stocks/Usage
2
0 91/92
So urce: USDA , Rabo bank
Stocks / usage
Million tonnes
Million tonnes
8
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Agri Commodity Markets Research
Agri Commodity Markets Research (ACMR) Luke Chandler Global Head +44 20 7664 9514 [email protected] Keith Flury Senior Commodity Analyst +44 20 7664 9676 [email protected] Erin FitzPatrick Commodity Analyst +44 20 7664 9540 [email protected] Rabobank Food & Agribusiness Research and Advisory www.rabotransact.com
Global Financial Markets Corporate sales contacts: ASIA?Brandon Ma +852 2103 2688 [email protected] AUSTRALIA?Terry Allom +61 2 8115 3103 [email protected] EUROPE?Martijn Sorber +31 30 216 9447 [email protected] BRAZIL?Sergio Nakashima +55 11 5503 7150 [email protected] US?Bruce King +1 212 808 6908 [email protected] MEXICO?Neil Williamson +1 212 808 6966 [email protected] CHILE?Enzo Folch +56 2 8730332 [email protected]
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