Agri-View July ’11 WASDE reaction ::Macquarie Research

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Agri-View
July ’11 WASDE reaction
Feature article
 We highlight in this report what we feel are the most important changes made
by the USDA in today’s WASDE report. In the near term we expect the
ramifications to be bullish for corn, bullish/neutral for wheat and rapeseed and
neutral/bearish for soybeans and cotton.
Key Highlights
 Corn: Benchmark corn futures traded higher as the USDA once again made a
myriad of changes to their expectations for 10/11 and 11/12 demand. The
key changes came for the new crop, with the forecast of US ending stocks at
870m bu, 143m bu lower than the markets expectations. The USDA
increased total US demand by 245m bu to 13,500m bu. The alternations
came from a 50m bu increase in feed demand, a 100m bu increase in ethanol
and an increase in exports of 100m bu. From the production perspective the
USDA, as expected, maintained their estimates from the June 30th report. We
expect if weather conditions remain favourable they will revise yields higher in
the coming months. From a global perspective the USDA increased Chinese
11/12 imports by 1.5mt. This increase is largely responsible for the move
higher in US exports. We expect Chinese exports in 11/12 to be at least 3-4
mt.
 Wheat: The USDA made substantial changes to US production, increasing
their winter wheat forecast to 1,491 vs. the trade expectation of 1,454. This
increase has been negated by the unexpected increase of 100m bu in export
demand. Other spring wheat production is projected inline with expectations
at 551m bu. As we expect the re-survey of the Dakota’s, Minnesota and
Montana to show a smaller planted area, other spring wheat production will
likely be revised lower in the August report. From a global perspective the
report clearly highlighted the world’s shortage of high quality wheat. If we
take into account the aggressive move lower in Canadian production to
21.5mt, the USDA expects the world’s main high quality wheat crops (HRW,
HRS and Canadian) to fall 15% YOY. Both Kansas and Minneapolis wheat
futures will remain at a large premium to Chicago.
 Soybean: The report is neutral to bearish for soybeans as the expected
reduction in US production has been offset by decreased Chinese demand.
The USDA revised their US export expectations lower for both 10/11 and
11/12, reflecting lower import demand from China. The USDA also reduced
both Argentine and Brazilian exports for 10/11, this change had been largely
expected. Increased stocks of soybeans in South America will encourage
more competition with the US, so we foresee further revisions lower in US
11/12 export expectations.
 Rapeseed: The USDA revised their Canadian rapeseed harvest area to 7.1
m/Ha; the implication is 0.4mt reduction to production. From a global
perspective the USDA project ending stocks at 3.7mt, the lowest since 2007.
We forecast 11/12 ending stocks higher than the USDA as elevated prices in
the rapeseed complex will encourage substitution for other veg oils where
possible.