Macquarie Research, Agri View July ’11 grain & oilseed update

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Agri View
July ’11 grain & oilseed update
Feature article
 In this report, we highlight our current view of the global grain and oilseed
complex and underline our expectation of the forthcoming USDA WASDE
report. From the beginning of June global macro trends took prominence,
with grain and oilseed fundamentals taking a back seat. This trend was
rapidly reversed as the USDA released a shocking June 30th Stocks and
Plantings report. We maintain our view that prices will remain historically high
and that price risk is skewed to the upside. We see little to no recovery in
global grain and oilseed stocks in the 11/12 season, as demand growth
should keep pace with any recovery in production.
Latest news
 Corn: CBOT corn futures have seen extreme volatility over the last two
weeks, trading between $6.29 and $7.14. From the supply side, the shock
USDA report on June 30th implies US corn has recovered from critically tight
levels, but stocks are expected to stay at historically low levels. We also note
that the frosts through June and into July in Brazil cause concern for safrinha
corn production. From a demand perspective, both ethanol and livestock
futures carry on outperforming corn prices, leading to continued growth of
producer margins. The main demand story for corn, though, is that Korea,
Egypt and specifically China are using the current dip in prices to complete
import agreements.
 Wheat: Wheat markets have been resistant to significant rallies due to
harvest pressure and aggressive competition from the Black Sea into the
major wheat tenders. Benchmark CBOT wheat futures have remained
depressed, with spot contacts at a discount to corn on the back of the current
bumper SRW harvest. We expect increased wheat inclusion in the feed ration
until we reach corn harvest. To note also, The Andersons announced on
Friday that they will be blending a small proportion of SRW wheat with corn in
their ethanol production. This change is expected to be temporary and not
widespread across the US ethanol industry. We anticipate competition from
the Black Sea to continue to restrain rallies in the near term, but tight global
stocks in 11/12 suggest prices will stay elevated.
 Soybean: CBOT soybean prices continue to trade in a $13 to $14 range. The
bullish planted area projections in the June 30th report were relatively
neutralised from a price perspective from the bearish corn numbers. The
price outlook for soybeans has begun to improve on the longer term as
Chinese crush margins have turned positive in the OCT-DEC period. We
expect this change to imply increased quantities of soybean imports to China
in the coming months. This view is supported by the recent rally in Brazilian
basis levels.
 Rapeseed: MATIF rapeseed futures have remained supported over the last
two weeks. We expect the European rapeseed deficit will keep MATIF futures
supported and encourage a level of demand rationing. ICE futures have
remained near unchanged due to the improving Canadian canola prospects
neutralising concerns from the global perspective.