Macquarie Agri-view - Post Oct WASDE report::Macquarie Research,

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Macquarie Agri-view
Post Oct WASDE report
Feature article
 We highlight in this report our reaction to today’s USDA WASDE report.
Given the trend of recent USDA reports, the big shock was there were no real
shocks. The USDA changed very little in the balance sheets, leaving corn
yields unchanged and lowering harvest area in line with expectations. The
market will remain hung over though on the revelation of Chinese buying
which lead to a significant swing higher in prices yesterday. In sum from a
fundamental perspective the report was neutral for corn, bearish for wheat
and bullish for soybeans.
Latest news
 Corn: The USDA left US corn yields unchanged at 148.1bpa and dropped
harvested area by 500K acres roughly in line with our expectations of 400K
acres. This WASDE report has been clearly over shadowed by the revelation
of Chinese corn buying. From a demand perspective the USDA shifted import
demand lower to 1,600m bu; this does seem unrealistic now given the
announcement of additional exports to China yesterday. Another highlight
from the report is the significant shift higher in Ukraine corn production to
21mt, on the basis of this increase in production the USDA have revised their
export estimate higher to 12mt. The only other changes of interest have been
for the China balance sheet. The USDA increased their production
significantly for the 09/10, 10/11 and 11/12 season, but counteracted these
alterations with increases in consumption. Interestingly the USDA maintained
their estimate of Chinese corn imports at 2mt, our current projection remains
at 5mt.
 Wheat: The outlook for wheat in the near term from this report is certainly
bearish as both US and global stocks have seen revisions higher. This has in
part been implied by lower feed demand, but a significant proportion has
come from playing with historical stock piles of grains, with beginning stocks
increasing by 2.26mt. The shift in feeding demand has mainly come from the
USDA lowering US wheat feeding to 160m/bu from 240m/bu. We had
expected the USDA to be more conservative than this; we maintain our view
that realised wheat feeding will actually be far higher. From a global
perspective we also maintain our view that wheat feeding will be significantly
higher than the USDA’s current forecast as wheat feed remains at a
significant discount to other feed grains into all the major import destinations.
 Soybean: For soybeans the shift lower in both yields and harvest area is
fundamentally bullish, but we maintain the view that the large stockpiles of
soybeans in South America limit the relevance of this change. The USDA
dropped the national yield nominally to 41.5bpa and also reduced planted
area by 100K acres. This change in conjunction with the shift lower in stocks
seen in the NASS report on Sep 30th has inspired the USDA to lower their
export projection for the US by 40m/bu. We believe this further shift lower in
US seaborne supplies of soybeans is easily accommodated into the global
balance sheet as the large stock piles in South American along with the
projection of another bumper harvest will allow them to respond to this
change.