Macquarie Agri-View-- A wild ride ahead for grain markets

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Macquarie Agri-View
A wild ride ahead for grain markets
Feature article
 The full implications of the USDA’s shocking corn stocks estimate are still
being absorbed by the market, yet there is little doubt that losing nearly 200m
bu off of the US corn balance sheet in this market environment is extremely
bullish. The USDA faces a difficult task on the 9 April WASDE report to
incorporate the quarterly stocks report without showing the US market running
out of corn by the end of the season.
 In this report we update our US corn, soybean and wheat balance sheet
projections in anticipation of the April WASDE report. The WASDE report will
be bullish for corn prices, in our view, as the USDA will be forced to show a
higher total MY feed and residual usage, which will slash US corn ending
stocks. We expect the report to be neutral for soybeans, as we expect
demand estimate downgrades. Finally, for wheat, we think the report will be
fundamentally bearish, as the USDA will likely increase 2010/11 ending
stocks. However, due to concern over 2011/12 production (which will not be
reflected in the US WASDE reports until May), we expect wheat to continue to
follow corn higher following the report.

Latest news
 Corn: Corn prices have risen to all-time record highs following last
week’s shocking USDA corn stocks report. Macquarie is bullish on corn
and expects prices to eventually rise to at least $8.50/bu in order to slow
demand for corn from ethanol and livestock producers. The US Midwest has
experienced relatively cool early April temperatures, which have led to a slow
start to the planting season compared to last year. The market is very
concerned about the potential for spring planting delays, particularly in the
northern Midwest, which still lies under a blanket of snow. The March corn
price dip has led to an increase in end-user purchasing of corn, which will
make demand rationing even more difficult going forward. Newswires suggest
that discussions are now taking place between Chinese and Argentine
officials regarding a tentative phytosanitary agreement which would allow
China to buy Argentine corn. For now, all attention is focused on the
upcoming WASDE report, which is expected to show a steep decline in US
2010/11 corn ending stocks.
 Wheat: The wheat market continues to follow corn higher as the
wheat/corn spreads decline to near-record lows. Nearby wheat
fundamentals are weak, although the 2011/12 balance sheet could tighten up
significantly due to poor HRW crop conditions. Informa recently downgraded
its expectation for the US winter wheat crop to 1.496b bu, down from a March
estimate of 1.531b bu. The USDA attaché in Australia is now forecasting
near-record wheat planting area of 13.8m ha for the 2011/12 crop.
 Soybeans: Soybean prices continue to come under pressure due to
absence of additional purchasing from China. Brazil is harvesting a record
crop, and US and Chinese soybean crush margins remain very weak. China’s
soybean stocks at the ports remain heavy and will likely lead to lower import
demand over the next few months. CONAB has increased its Brazil soybean
crop estimate to 72.2mt, up from a previous estimate of 70.3mt.