Macquarie Research, Agri View Sep ’11 post WASDE reaction

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Agri View
Sep ’11 post WASDE reaction
Summary
 In today’s WASDE report the USDA has reduced corn yield more aggressively
than we had expected, down to 148.1bpa, or 4.9bpa lower than their Aug’11
estimate. To account for this drop it has reduced total demand by 400m bu,
leaving ending stocks at the historically low level of 672m bu. From a global
perspective the picture looks healthier, with an increase of 5.15mt in ex-US
corn production and a 6.0mt increase in world wheat production. These
changes help neutralise the bullish connotations from the US corn balance
sheet in the short term.
WASDE Reaction
 Corn: The USDA lowered corn yields by 4.9bpa to 148.1, which compares to
our estimate of 148.8bpa. There remains potential downside to these
numbers in forthcoming reports, but in the short term the changes to world
corn and wheat production will help neutralise these issues. In response to
the drop in US production the USDA has implied that 505m bu of demand will
have to be rationed YOY. It lowered feed demand by 200m bu to 4,700m bu
and lowered export demand to 1,650m bu. From a global perspective the
USDA revised Ukrainian and Argentine production higher by 1.5mt each. In
the short term this report will be viewed as relatively neutral to prices, but we
remain concerned that US production could still fall further, thus implying the
necessity to ration ethanol demand. If the US has to ration ethanol demand
prices would have to move significantly higher.
 Wheat: As we expected the USDA has revised both Canadian and EU-27
wheat production higher, by 2.5mt and 2.3mt, respectively. It also increased
Ukrainian wheat production to 22mt and increased wheat beginnings stock by
1.6mt. From a demand perspective the USDA have increased world wheat
feeding by another 2.2mt to 130.1. We expect further revisions higher for
wheat feeding in the coming months, as wheat remains at a significant
discount versus corn into all the major import destinations. Our forecast for
wheat feed demand in 11/12 is 136.0mt. Even though wheat fundamentals
remain bearish, we expect the bullish sentiment from corn will see prices
supported.
 Soybeans: The report is bearish for soybeans, as the USDA has increased
yields by 0.4bpa to 41.8bpa. US soybean ending stocks have been revised
higher to 165bpa, implying a stocks-to-use ratio of 5.2%. The US soybean
stocks-to-use ratio does remain at a very low level historically, but as there
are healthy stocks in the South America, the issues in the US are neutralised.
The USDA left the global balance sheet for soybeans relatively unchanged;
the only notable alteration was the increase in Brazilian and Argentine
beginning stocks. We expect to see further revisions higher in the coming
reports of Brazilian soybean production; the combination of this and the
healthy stocks in South America will weigh on prices. Soybeans will remain
the laggard of the grain and oilseed complex, with prices supported on the
downside by sentiment from the grains complex.