August ’11 grain & oilseed update::Macquarie Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


August ’11 grain & oilseed update
Feature article
 In this report, we highlight our current view of the global grain and oilseed
complex and underline our expectations of the forth coming USDA WASDE
report. We expect the USDA to predict US corn yields at 155.8 bpa. Macro
headwinds will remain the dominate story in the grains and oilseed complex,
distorting fundamentals in the near term.
Our View
 Macro Impact: The risk of the US and Europe pulling the world back into
recession will be a dominant feature in the grain and oilseed markets in the
coming weeks and months. With the threat of risk-off trades pulling
commodity markets down and discussions of falling demand due to lower
growth, prices will struggle to break out to the upside of their current range.
We reinstate our view that grain and oilseed markets remain historical tight
and should find price support from physical demand. The fundamental
situation is significantly different to 2008/09 when grain prices fell
dramatically; the production reaction this time around to the high prices has
been severely curtailed by weather events. In the longer term, the world
needs the 2012/13 and 2013/14 harvests to be free from serious weather
issues to see global stocks of grains recover.
 Corn: Fundamentals remain supportive of corn prices in the medium term as
production constraints will require a second season of demand rationing.
Due to a lack of analytical data the USDA will be unlikely to report a yield
outside of the 155-158 bpa range. The USDA’s September yield estimate will
be far more relevant for driving market sentiment. From the demand
perspective, we expect the USDA to lower total US 11/12 usage by 200m bu.
We see further potential downside to US corn demand as feed usage will
likely continue to fall and export demand will be reduced by cheap Black Sea
and Australian feed wheat competing into the major export destinations.
 Wheat: Strong competition from Russian-origin wheat has put significant
pressure on European and US prices in the last month. We do, though, see
wheat demand significantly higher YOY, as it plays a more extensive role in
the global feed ration. At the other end of the wheat scale, we continue to see
potential downside to the global supply of high quality wheat. We remain
concerned that quality wheat production in both the US and Germany could
be further affected. We are also concerned about the dry conditions in the US
and Russia affecting winter wheat plantings.
 Soybean: Any bullish fundamentals from the US soybean crop are being
neutralised by a large increase in palm oil production and heavy soybean
stocks in Brazil. Even though Chinese crush margins and, in turn, import
demand has begun to recover ,we still see soybeans as one of the laggards of
the grain and oilseeds complex. We expect Brazilian planted area to continue
to increase as economics favour soybean expansion. Healthy planting and
growing conditions in South America will be key to the price outlook for
soybeans.