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17 November 2008

Nothing earth shattering… yet

Last week’s USDA global S&D reports were more a tweaking exercise than anything else, with very slight downward reduction in US corn and bean yields. US bean production was slightly below expectations, but beans were above.

The general feeling is that corn yields are better than expected, while beans are worse – most of the bean crop has been harvested, so production estimates must be pretty close.

On the global front, the USDA projected 2008/09 wheat production at a record 682mmt – up 2.2mmt from last month. Increases for EU-27 (+3mmt) and Russia (+2mmt) more than offset reductions for Argentina (-1mmt), Australia (-1.5mmt) and China. Global stocks were increased by 1mmt, to 145mmt, with a stocks to use ratio of 22% – up from 19% last year.

Tellingly, the USDA lowered US seed use, which points to lower plantings. The lateness of this year’s US row crop harvest has limited planting opportunities for both soft red and hard red winter wheat. The first guesstimates suggest that 2009 US winter wheat seedings could fall 5% to 60m acres – down 3m acres from last year.

Coupled with indications that winter cereal plantings may have dropped across other northern hemisphere producers, and that fertiliser use will be down (lower yields), are we now sowing the seeds for a rally in prices sometime in 2009, if not 2010?

The USDA raised global coarse grain stocks for 2008/09 by 5mmt, with larger production (higher corn and barley production across Europe) and lower use (in Brazil), but stocks to use are still tight at 14% – up from 13% last month. US domestic use of corn held steady, despite demand concerns following VeraSun’s (the largest ethanol producer in the US) filing for bankruptcy and problems at Pilgrims Pride – the largest poultry producer in the US. Export demand for US corn is weakening and the USDA pulled back US corn export projections.

Most interesting (in a rather bland report) was the USDA oilseed projections. Global oilseed production for 2008/09 is projected at 481mmt (-1mmt), with lower soybean and cottonseed production only partly offset by higher rapeseed and sunflowerseed production.

The big news was the USDA lowering Brazilian soybean production by 2.5mmt to 60mmt due to reduced area and yields – most unofficial estimates we are seeing are now sub 60mmt.

 
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