Macquarie Agri View - Post June ’11 WASDE

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Macquarie Agri View
Post June ’11 WASDE
Feature article
 We highlight in this report what we feel are the most important changes made
by the USDA in today’s WASDE report. The report was fundamentally bullish
for corn and rapeseed, and neutral to wheat, soybeans and cotton. In the
near term, we expect the ramifications from today’s changes to support the
grain and oilseed complex. The market will initially focus on the USDA’s
lowered estimates for US corn plantings, but as the dust settles, the
consequences of the changes to Chinese corn stocks and global wheat
production will start to manifest themselves.
Key Highlights
 Corn: The market will likely focus on the USDA’s surprise reduction in US
planted area to 90.7m acres. While this is in line with our estimation of 91m
acres, we had expected the USDA to wait until the June 30 plantings survey
report before making such changes. The consequences for the US balance
sheet are critical, as under the USDA yield assumption of 158.7 bu/a, 11/12
new crop ending stocks are now reduced to 695m bu. This suggests
another season of hunting for demand rationing as ending stocks at these
levels are still critically tight. From a global perspective, the USDA made
notable changes to Chinese production and consumption for both the 10/11
and 11/12 seasons. For both seasons, the increases made to production
were outweighed by the increase to consumption. The net effect means
Chinese 11/12 ending stocks fall a massive 12mt. These changes will
breed more concern that China will become a large net importer of corn. We
reaffirm our view that corn will remain the bull side leader across the grain and
oilseed complex.
 Wheat: The USDA increased 11/12 global ending stocks by 3mt, in part due
to large reductions to 09/10 and 10/11 Russian feed demand. They also
dramatically reduced the drought-affected EU production to 131.5mt,
which in our view seems too aggressive as yet. The gravity of the changes to
EU production reflects the widespread market concerns over the crops of the
world’s major exporters. We expect further bullish sentiment will continue to
emanate from these regions. The 5mt increase to Russian ending stocks that
resulted from lowered internal feed demand may be seen as fundamentally
bearish. But we caution that there are a lot of unknowns regarding
Russian wheat quality as well as prospects for export restrictions. We
also note the marginal increase for US wheat production, but we highlight that
high quality wheat production continues to be replaced by lower grades. Any
further losses to spring wheat plantings will magnify this issue.
 Soybeans: This report reinforces the reason why soybeans have and will
remain the laggard of the grain and oilseed complex. For 10/11, global
production is increased due to the record 74.5mt Brazilian crop, while Chinese
import demand is lowered to 54mt. The USDA also increased Argentine
internal crush demand which supports our expectation of increased soy oil
exports to China. The 11/12 balance sheet sees only modest changes, with
the only notable highlight being a reduction 0.5mt to Chinese production.