Agri-View - May WASDE report wrap-up :: Macquarie Research

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Agri-View
May WASDE report wrap-up
Feature article
 Today’s WASDE contained few surprises, but will likely be interpreted as
bearish. The USDA’s first estimates for the 2011/12 season were broadly in
line with our expectations (see Macquarie Agri-View 6 May 2011) of a slightly
loosening global supply/demand balance. While stock projections may have
come in higher than trade estimates (a cue for funds to take profit and inject a
short term bearish tone to the market), we reiterate our concern over weather
risks during the growing season and the fact that for corn, for example, even
USDA’s higher than expected stock number remains historically very tight.

USDA May WASDE report highlights
 Corn: For 2011/12, US corn production is projected at 225m bu below their
forum estimates, due to a much lower yield expectation of 158.73bu/acre
(down 3bu/acre) following the slow pace in planting so far. Ending stocks,
however, are projected higher at 900m bu, against this season’s 730m bu, on
the back of falling export demand. As highlighted in our last report, we had
expected to see falling corn exports for 2010/11 to 1.9bn bu. However, with
US ethanol demand projected higher, and US feed demand left unchanged at
5.15bn bu, the US stock/use ratio still comes in at a very tight at 6.7% –
providing little margin for error. Globally, the USDA projects Argentine corn
production to recover to 26m tonnes, allowing it to increase exports to 18mt,
providing more competition in the international market.
 Wheat: USDA expectations of the US 2011 wheat crop have come out slightly
higher than ours, at 2.043bn bu, but still the smallest in five years. It sees the
US drawing back from the export market with projected exports falling 225m
bu year-on-year, leaving a comfortable S/U of over 30%. Globally, the USDA
sees production recovering 21m tonnes, which leaves ending stocks falling
slightly to 181.26mt. Reflecting lower yields on poor ongoing weather, it
reduced the EU-27’s wheat production to 138.62mt and Canada’s to 26mt.
Russia’s crop was anticipated at 53mt, up from last year’s drought-ravaged
41mt. For both Canada and Russia, we remain concerned about the slow
pace of spring plantings; and our own projections point to a Russian wheat
crop of 51.8mt and Canadian production at 24.5mt.
 Soybeans: With a slightly bullish slant for new crop, the US 2011/12 soy
production was in line with our expectations at 3.285b bu, leaving new crop
ending stocks at low levels for another year at 160m bu, or S/U at 4.8%. This
is despite a modest decline in US exports as Brazilian soy takes more market
share. Globally, ending stocks will fall by over 3% as demand continues to
grow. Chinese imports are expected to rise by 3.5mt to a record 58mt.
 Cotton: The USDA kept the 2011/12 US cotton crop production number
broadly unchanged from 2010/11 at 18m bales, due to a much lower yield and
high abandonment following the current drought conditions in the major cotton
growing areas. However, US exports are set to fall by 2m bales to 13.5m
bales due to lower foreign demand. The high prices have induced greater
plantings in Asia, and the USDA expects production in India, China and
Pakistan to rise by 2–4m bales each to 27m, 33 and 10.3m bales respectively,
allowing global stocks to rise 13% in 2011/12.