The Morning Rant

Posted by Nogger - a legend in his own mind at 11:46 | Categorized as

03/07/12 -- London and Paris wheat have hit fresh contract highs this morning, following the lead of US grains. The IGC yesterday cut their US corn crop estimate to 350 MMT - strangely the exact amount that I calculated yesterday using the USDA's newest harvested area forecast along with Informa's revised yield estimate. As mentioned yesterday 350 MMT would still be an 11% increase on last year's production and an all time record.

It may be considered slightly strange then that the market is through the roof against a backdrop of what is currently still set to be a record US corn crop by some considerable distance.

Of course, given the current weather forecast, there is an distinct possibility that US corn yields will come in lower than Informa's 154.9bpa. However, using the USDA's forecast harvested area of 88.9 million acres we'd need to see final yields at 147bpa before US corn production isn't a record this year.

"But China may need to import 8 MMT of corn this year," many would point out. So what? If so (and DDGS imports may curtail some of this demand), at least half of that could easily come from South America. And what is 8 MMT of corn in the overall scheme of things? Less than 1% of the world's output, that's what.

Meanwhile the Chinese are currently importing almost that volume of soybeans per month - nearly 7 MMT in June, according to the Ag Ministry. If the market warrants getting excited about anything it's soybeans not corn - at least this side of South America's 2012/13 crop.

Talking of which, output there could be a monster in the spring of 2013. Big prices do after all encourage big plantings. Safras e Mercado yesterday estimated Brazil's 2012/13 soybean crop at 79.4 MMT, some 21% up on this year. Corn production will come in at 71.95 MMT next year, an increase of 7% on this season's record crop.

Similar large increases in output are also expected from Argentina, assuming of course that weather condition return to normal. That's a fairly big "if" some would say. It's also a fairly big "if" that weather conditions in South America won't be normal however. Indeed, it could be that weather conditions are better than normal, there's just as equal a chance.

The Australia Bureau of Meteorology today said that climate indications point towards a shift towards an El Nino climate event in the coming months. Typically that means abundant rainfall for South America, Argentina in particular.