US soy farmers to expand share of Philippine market
[15 December 2010] Based on the anticipated growth of the Philippine feedmilling industry, American soybean farmers are looking to further expand their share of Philippine soybean meal supply. Buoyed by a vibrant economy and higher meat and poultry consumption. The Philippines imported 1.5 million metric tonnes of soybean meal last year with US soybean meal taking 35% share of the market. Industry insiders believe this year’s imports may exceed 1.6 million tonnes due to higher feed demand from the pork and poultry sector.

Excellent US corn quality in 2010-11
[17 December 2010] US corn quality for the 2010-11 crop is excellent, but the price may rally due to low ending stocks, said Jay O'Neil, Senior Economist at the Kansas State University's International Grains Program. In a webinar held yesterday by the US Grains Council, Mr O'Neil said the crop contains an average moisture content of 14.5% versus 24% in the previous crop, while its protein content appears to be close to 8% versus 7.5% average in the previous crop. "This is a 180-degree turnaround from the previous crop," he said. Due to good weather conditions, the corn was naturally dried in the field and this resulted in low damage (less than 2%, down from 3.5%) and far less BCFM (broken corn and foreign matters)," Mr O'Neil said his data was obtained from interviews with grain silo owners and corn producer cooperatives in several states in the US. However, he said, given a mere 21 million tonnes of carry over corn from 2009-10, corn futures prices could rally to USD6-7/bushel, and could reach USD8/bushel in a year from now, unless a bigger crop is produced. "My advice to buyers is that there is a possibility that the price (or corn) could go very high. You should be careful with your pricing strategy," he said. The US is expected to export 49.5 million tonnes of corn in 2010, a slight decrease from 50.5 million tonnes in 2009, while an estimated 122 million tonnes will be diverted into ethanol production, up from 116 million tonnes in 2009.

Grain trader foresees 20 years of food security issues
[28 December 2010] During the recent International Grains Forum, founder and Managing Director of Singapore-based grain trader Agrocorp International, Vijay Iyengar, said that that global food security was one of the most important issues the world would have to deal with in the next 20 years. He also said that in a long-term look to the future, Africa and the Middle East would be the driver for imports over the next 10 years and Russia and Ukraine showed great potential for exports due to the amount of land that was slowly being made available for agriculture.

Seven key drivers that shape Agri Commodities Markets in 2011 07 Jan 2011
Rabobank forecasts further price rises in a number of agricultural markets in 2011. The Agri Commodity Markets Research Outlook 2011 expects potential price rises to be greatest for corn, soybeans and coffee.

In this new report Rabobank agri commodities experts look at the lessons learned from the 2007/2008 food crisis, and list seven key thematic drivers of agricultural commodity markets in 2011.
 
1.Tightening inventory levels
Rabobank’s Luke Chandler believes that the current price rally is both broader and more structurally based than that of 2007/2008. “Stocks-to-use levels in many major products are at or below those seen in 2007/2008, with the exception of wheat. But prices have not responded on the same scale as three years ago. Corn prices, for example, are still 27% below the highs of 2008.”
 
According to the report the difference in the market reaction is partly due to the unstable macro environment in 2010. And energy prices have remained significantly lower than in 2008, providing less support for agricultural prices.
2.Supply limitations
A number of agricultural commodities need to expand production in 2011 to rebuild stock levels, which could cause significant supply constraints.
 
Chandler: “With cotton prices at record highs, a battle for acres is building as farmers decide whether to increase cotton acres over soybeans, wheat and corn.”
 
Other farm-input constraints such as fertiliser, chemicals, finance, seed, labour and machinery may impede efforts to respond to high prices in 2010.
 
In addition the availability of credit for farmers, and the current strength of the La Niña weather system - which heightens the risk of weather and production variability - could limit supply in 2011.
3.Emerging markets
Emerging economies are rebounding quicker from the global financial crisis than the west and are supporting demand for agricultural commodities.
 
For example, wheat demand in China, Brazil, Russia and India grew at 5% in each of the last two seasons, while it contracted 4% over the same period in the US and the EU.
 
Chandler: “Rapid economic expansion and changing dietary demands will continue to pressure traditional export supplies and encourage further investment in expanding supply, forming a key driver in the shift of the agricultural demand curve.”
4.Chinese demand for commodities
Chinese demand has a particular impact in reshaping agricultural commodity markets for soybeans, sugar, cotton and, potentially, corn.
 
“China has played a key role in transforming the global soybean markets,” explains Luke Chandler.
 
“China now accounts for 60% of global soybean imports, in addition to approximately 20% of world traded soybean. This growth has resulted in expanded planted area in the US and South America as soybeans became a major global commodity.”
 
Chandler expect this tremendous growth to be replicated in other commodities as China’s shifting consumption patterns increase demand.
5.Heightened political risk amid tightening food supplies
As seen in the 2007/08 agricultural bull rally, governments are extremely sensitive to food price inflation, and the potential of supply shortages in 2010 brought a muted re-emergence of government intervention in agricultural markets.
 
The imposition of grain export restrictions in the Black Sea region sent wheat prices soaring, and the EU decision to allow larger than expected sugar exports spurred a massive sell-off in November.
 
Chandler: “Governments have always played a role in the markets, a trend that in our view is highly likely to continue in 2011.“
6.Fundamentals only part of the story
With agriculture and agricultural futures markets increasingly being viewed as an attractive asset class by investors, the role of outside market macro drivers are becoming more important in shaping agricultural price movements.
 
Currency markets around the globe are playing an ever more important role in agricultural commodity prices. In addition energy prices are expected to increase in 2011, which will impact the price of sugar and corn, commodities used to produce ethanol.
7.Sustained heightened volatility
The combination of tightening fundamentals and increased macro influence and uncertainty is expected to see the increased price volatility witnessed in most agricultural markets in 2010 sustained at high levels into 2011.
 
Chandler: “We expect the volatility which rose in 2010 after dropping during the recession to remain high for 2011 – largely a result of the impact of the other six thematic drivers we have highlighted.”
 
Macro Economic Outlook
Rabobank’s forecasts for agricultural commodities in 2011 are influenced significantly by global growth assumptions as expressed in the macro economic Outlook 2011.
 
Chandler: “Expectations of continuing macro uncertainty and a mostly two-paced economic recovery in the year ahead suggest that agricultural demand will continue to rely on emerging markets, be it under a cloud of inflationary uncertainty. The continuation of large, undesirable budget imbalances maintained by many developed economies will only slowly be eroded – with fiscal tightening yet to show any marked improvement in the EU and the US.”
 

Philippine coffee yields head downhill
ANNUAL coffee production has headed downhill in the last five years as Mindanao farmers shift to higher-yielding crops and rejuvenate farms, according to the Bureau of Agricultural Statistics (BAS).

Latest BAS statistics on major crops showed coffee production dropped by 1.02% to 96,433 metric tons (MT) last year from 2008’s 97,248. In 2005, the production volume was 105,847 MT. Coffee yields have been falling in the single digits since.

Falling coffee output was a result of the rejuvenation of farms in the Davao Region and the shift of coffee farmers in SOCCKSARGEN to banana and rubber.

Rolando T. Dy, executive director at the University of Asia and the Pacific (UA&P) Center of Food and Agribusiness, said that cutting down and replanting of trees in the Davao farms reduced the region’s overall output and greatly affected the country’s total coffee yield.

On the other hand, the shift to banana and rubber in Sultan Kudarat farms added to the causes of the drop in coffee produce. Roberto Ansaldo of Rocky Mountain Café said that switching has been going on for years since Vietnam and Indonesia were included among the world’s top coffee exporters.

Farm rejuvenation and shift of produce led to the decrease both in land dedicated for planting and the number of bearing trees.

Only 122,645 hectares were used to plant coffee in 2009 as compared to 127,975 hectares in 2005. Similarly, the number of coffee-bearing trees dropped to 85 million in 2009 from 91 million in 2005.

SOCCKSARGEN and the Davao Region are the Philippines’ top coffee producing regions, yielding 27,554 MT and 23,632 MT, respectively, last year.

Among coffee varieties, Robusta coffee was the most popular, accounting for 71.9% of total coffee produce, followed by Arabica and Excelsa, with 20.4% and 6.8% share. Liberica or “barako” coffee accounted for only 7% of the country’s total produce last year. — J.E.S. Tanyag

ANNUAL COFFEE YIELDS IN METRIC TONS,
BY REGION (2005-2009)
Region 2005 2006 2007 2008 2009
Philippines 105,847 104,093 97,877 97,428 96,433
CAR 6,010 6,346 6,252 5,950 5,700
Ilocos Region 78 85 88 98 105
Cagayan Valley 677 1,040 1,062 1,080 1,099
Central Luzon 1,627 1,534 1,591 1,673 1,706
CALABARZON 10,806 10,726 8,819 9,132 9,084
MIMAROPA 202 205 206 207 202
Bicol Region 382 366 340 339 335
Western Visayas 6,095 6,004 5,835 5,734 5,902
Central Visayas 585 364 314 295 251
Eastern Visayas 212 207 197 247 227
Zamboanga Peninsula 1,372 1,368 1,337 1,314 1,263
Northern Mindanao 6,037 6,292 6,287 6,203 6,016
Davao Region 29,769 28,839 24,466 24,066 23,632
SOCCSKSARGEN 27,187 27,047 27,123 27,022 27,554
Caraga 3,850 3,120 3,115 3,147 2,619
ARMM 10,958 11,000 10,844 10,922 10,737
Source: Bureau of Agricultural Statistics
 

Weekly Outlook: Waiting for USDA Reports
US - On January 12, the USDA will release a number of reports that will contain important information for the corn, soybean, and wheat markets writes Darrel Good, Agricultural Economist, University of Illinois.


These reports, along with crop development in the southern hemisphere, will set the tone for the markets into the spring. The Crop Production report will contain final estimates of the size of the 2010 corn and soybean crops. Changes, if any, from the November forecasts are expected to be small. Changes would most likely be in the yield estimates since administrative data has already been incorporated in the acreage forecasts. However, since the December producer survey is much larger than earlier surveys, acreage changes cannot be ruled out. In the previous 10 years, the change in the corn yield estimate in January has ranged from 0.1 bushel to 2.4 bushels and averaged 1.1 bushels. For soybeans, the change has ranged from 0.1 to 0.7 bushel and averaged 0.3 bushel.

The Grain Stocks report will contain estimates of the 1 December 2010 domestic inventory of all the major crops. The most interest will be in the estimate of the corn inventory. This is always the case since the report provides the first indication of the feed and residual use of corn during the first quarter of the marketing year. The report takes on added significance this year since the previous two quarterly stocks reports (June and September, 2010) provided surprises. The September estimate was larger than expected following a smaller than expected estimate in June. The September surprise set off a discussion about whether inventories of the newly harvested crop were inappropriately included and/or whether some of the 2010 harvest was fed in August. The USDA indicated that some new crop may have been fed in August and as a result has forecast 2010-11 marketing year feed and residual use of corn at 5.3 billion bushels, 2.7 per cent more than used in the previous year. Our analysis would suggest that the 1 September stocks estimate was very logical and that the USDA forecast of feed and residual use for 2010-11 may be too high. Additionally, the 16 per cent increase in ethanol production during the first quarter of the 2010-11 marketing year and the resulting increase in production and feeding of distillers’ grain may have substituted for an additional 40 to 50 million bushels of corn feeding. There is some risk, then, that the 1 December corn stocks estimate may reveal a slower pace of feed and residual use than currently forecast by the USDA. The magnitude of stocks will reflect any change in the production estimate and the large ethanol use of corn, as well as actual feed and residual use.

The monthly report of World Agricultural Supply and Demand Estimates will be closely observed for any changes in southern hemisphere production estimates and implications for the export demand for US crops. The estimates of production of corn and soybeans in Argentina will be most closely watched due to dry conditions that have prevailed since mid-October. The corn crop appears to have been most negatively impacted. Any changes in these forecasts, along with the 1 December stocks estimates will be reflected in changes in the projection of year ending stocks of corn and soybeans.

For soybeans, the USDA’s projection of the domestic use of soybean oil for production of methyl ester will be important. Previous reports have forecast a year-over-year increase of 1.219 billion pounds (72.5 per cent). The reinstatement of the biodiesel blender tax credit should support use moving forward, but use during the first two months of the marketing year (October and November 2010) was very small. Use in those two months totaled only 173 million pounds, compared to 485 million in October and November of 2009. To reach the current USDA projection, use during the 10 months from December 2010 through September 2011 will need to average 273 million pounds per month, 126 per cent more than the average of a year earlier. The forecast of soybean oil exports may also be influenced by the rapid increase in palm oil prices and the resulting improvement in the competitive position of soybean oil in the export market.

The Winter Wheat Seedings report is expected to show a large increase in winter wheat acreage following the sharp decline in 2009. The magnitude and location of those increases will have implications for the availability of acreage for spring planted crops, including double cropped soybeans. Beyond the acreage numbers, the condition of the winter wheat crop will have implications for yield and for the potential of replanting some wheat acreage to other crops this spring.

There is added price risk when so much information is released at one time. New estimates and forecasts may provide a consistently positive or negative scenario or they may provide mixed signals that the market will have to sort out. Given the recent history of USDA reports, an important surprise cannot be ruled out.

CME: Shrinking Corn Crop Expected to Shrink Further
US - Today's USDA Crop Production report will provide the feds’ final estimate of US corn and soybean crops and, according to the results of DowJones’ monthly pre-report survey, analysts expect the corn crop estimate to be lower and the soybean crop estimate to be higher than those of December, write Steve Meyer and Len Steiner.


The range and average of analysts’ estimates appear in the table below.


The “incredibly shrinking 2010 corn crop” is expected to continue to shrink a bit more with an expected yield of 153.9 bushels per acre. That number is only fractionally lower than the December estimate but is 6.6 per cent smaller than the 2009 yield. Analysts expect the estimated average soybean yield to rise 0.1 bushels from December to 44 bushels per acre, equal to last year’s yield

Those yield levels would push the corn crop down to 12.491 billion bushels, 0.4 per cent lower than December’s 12.54 billion bushels and 4.7 per cent lower than last year’s 13.110 billion bushels. Analysts still expect a record-large soybean crop of 3.376 billion bushels, slightly higher than USDA’s December estimate and 0.5 per cent higher than last year’s crop.

USDA’s quarterly Grain Stocks report will also be released tomorrow. This report is important because it will provide the first checkpoint for usage levels for the 2010 crops. The result of DowJones’ survey of analysts appear above. As expected given the crop estimates above, analysts expect significantly tighter corn stocks and roughly the same level of soybean stocks as were on hand on 1 December 2009.

Our argument last week that cattle prices are still too low relative to corn prices put us in such good stead with our producer readers that we thought we would try to gain the favor of hog producers this week using the same argument. As can be seen in the chart at right, it is not a difficult one to make.

The chart shows the ratio of nearby monthly hog futures to corn futures from 1972 to date. Note that there is one complication of this chart relative to the cattle chart: The change from the original Live Hogs contract to the new Lean Hogs contract priced on a carcass weight basis beginning with the Feb 1997 contract. That change, of course, increased the apparent level of the hog:corn ratio but really just re-defined the critical levels of the number. Where 20:1 was once the critical level for expansion, a ratio of 26.7 would now be required.


As was the case with the fed cattle:corn ratio, the hog:corn ratio has been very low since 2008 when corn prices originally took off as a) oil prices rose and b) ethanol began using a higher and higher percentage of the U.S. corn crop. Since that time, the hog:corn ration has never been very close to the historical relationship — now 26.7:1 based on carcass pricing — required to entice producers to expand output. In fact, the ratio has hardly touched the OLD required level of 20:1 during that time period. But you might say “Yes, but summer LH futures are trading at $93-plus.” True. But July corn futures closed yesterday at $6.20, meaning that the July hog:corn ratio is still only 15.1:1. If these corn prices persists, look for hog prices to move higher yet in order to bring the industry back into a profit position that begets growth.

World Agricultural Supply and Demand Estimates - January 2011
While US supplies of corn, wheat and soy are expected to be down this month, global supplies of wheat are up, although coarse grain supplies and soybean production globally are lower, according to the latest USDA World Agricultural Supply and Demand Estimates.

Livestock, Poultry and Dairy
The estimate of 2010 red meat and poultry production is raised from last month, reflecting higher production of beef, pork, broilers, and turkey. The forecast of production for 2011 is also raised for beef and broilers, but lowered for pork. The turkey production forecast is unchanged from last month. The increase in beef production reflects large placements of cattle during the fourth quarter of 2010 which will be ready for slaughter during mid-2011. USDA will release its Cattle report on January 28 providing an indication of producer intentions for heifer retention in 2011 and feeder cattle availability. Broiler production forecasts are adjusted to reflect relatively heavy bird weights. Pork production is reduced slightly for 2011. USDA’s Quarterly Hogs and Pigs report indicated that producers intend to farrow fewer sows in the first half of 2011 but continued strong growth in the number of pigs per litter implies relatively abundant supplies of hogs for slaughter will be available during 2011. Higher forecast hog weights will also partly offset the effects of lower farrowings on pork production, but recent increases in weights are not expected to be sustained during the year. The forecast of egg production is unchanged from last month.

The forecast for beef exports for both 2010 and 2011 is unchanged from last month but the forecast of beef imports is lowered as a weak US dollar and tight supplies in several exporting countries limit shipments. The pork export forecasts for 2010 and 2011 are reduced slightly from last month as higher pork prices are expected to more than offset weakness in the US dollar. The broiler export forecast is raised for 2010 but the 2011 forecast is unchanged from last month.

The cattle price forecast for 2011 is raised to reflect continued strong demand for cattle and tightening supplies of fed cattle. Hog prices for 2011 are forecast higher as demand for hogs remains strong. The broiler price forecast is lowered on larger supplies of broilers and competing meats. Egg prices are forecast higher.

The milk production estimate for 2010 and forecast for 2011 are unchanged from last month. Ending stocks for 2010 are reduced due to expected low stocks of butter and nonfat dry milk (NDM) at the end of the year. Imports for 2010 and 2011 are reduced due to low US prices relative to those internationally coupled with a weak US dollar. Skim-solids basis exports are raised as NDM exports are expected to be supported by tight world supplies into mid-2011. Fat basis exports for 2010 are lowered from last month on weaker-than-expected exports of butterfat.

Butter, NDM, and whey prices are forecast higher, but the cheese price forecast is lowered. Tighter beginning stocks support a higher butter price forecast while generally strong exports of NDM and whey will support higher prices. The cheese price forecast is reduced from last month on moderate demand. The Class III price forecast range is reduced as the lower forecast cheese price more than offsets the higher whey price forecast. The Class IV price forecast is raised as both the butter and NDM price forecasts are raised. The all milk price is forecast to average $16.10 to $16.90 per cwt for 2011.

Wheat
US wheat ending stocks for 2010/11 are projected 40 million bushels lower this month as a reduction in expected feed and residual use is more than offset by higher projected exports. Feed and residual use is projected 10 million bushels lower as December 1 stocks, reported in the January Grain Stocks, indicate lower-than-expected disappearance during September-November. Exports are projected 50 million bushels higher reflecting the pace of sales and shipments to date and reduced competition with lower foreign supplies of milling quality wheat. At the projected 1.3 billion bushels, exports would be the highest since 1992/93. Most of the increase is expected in Hard Red Winter and Soft Red Winter wheats, but exports are also raised slightly for Hard Red Spring and white wheats. The marketing-year average price received by producers is projected at $5.50 to $5.80 per bushel, up from $5.30 to $5.70 per bushel last month.

Global 2010/11 wheat supplies are raised slightly this month as increased beginning stocks are mostly offset by lower foreign production. Beginning stocks for Argentina are up 0.9 million tons with upward revisions to 2008/09 and 2009/10 production estimates. Argentina production is also raised 0.5 million tons for 2010/11 as harvest results indicate higher-than-expected yields. Production in Brazil is raised 0.4 million tons as favorably dry harvest weather boosted yields for the 2010/11 crop. EU-27 production is raised 0.3 million tons based on the latest official estimates for Poland. More than offsetting these increases are reductions for Kazakhstan and Australia. Kazakhstan production is lowered 1.3 million tons based on the latest government reports. Australia production is lowered 0.5 million tons as heavy late-December rains and flooding further increased crop losses in Queensland.

World wheat imports and exports for 2010/11 are both raised slightly. South Korea imports are raised 0.4 million tons, mostly offsetting an expected reduction in corn imports. Imports are also raised 0.2 million tons each for Thailand and Vietnam based on the pace of shipments to date and the increased availability of feed quality wheat in Australia. Imports are lowered 0.5 million tons for EU-27 based on the slow pace of import licenses to date. Major shifts among exporters are projected as importers focus on US supplies to meet their milling needs. Australia exports are reduced 1.5 million tons as quality problems limit export opportunities. Kazakhstan exports are reduced 1.0 million tons with lower supplies. While Argentina marketing-year (December-November) exports are raised 0.5 million tons, exports during the remainder of the July-June world trade year are expected to be lower based on the slow pace of government export licensing.

Global 2010/11 wheat consumption is projected 1.2 million tons lower, mostly reflecting reduced wheat feeding in EU-27, the United States, and Kazakhstan. Food use is also lowered for EU-27 and Pakistan. Partly offsetting are increases in feed use in South Korea, Thailand, and Vietnam, and higher expected residual loss in Australia with the rain-damaged crop. Global ending stocks are raised 1.3 million tons with increases for EU-27, Argentina, and Australia, more than offsetting the US reduction.

Coarse Grains
US feed grain supplies for 2010/11 are projected down reflecting lower corn production. US corn production is estimated 93 million bushels lower as a 1.5-bushel-per-acre reduction in the national average yield outweighs a 183,000-acre increase in harvested area. A 5-million-bushel increase in projected US corn imports slightly offsets the reduction in output. Corn feed and residual use is projected 100 million bushels lower based on September-November disappearance as indicated by the December 1 stocks. Corn used for ethanol is raised 100 million bushels offsetting the reduction in expected feed and residual use. Record December ethanol production, as indicated by weekly Energy Information Administration data, boosts corn use to date.

Ending corn stocks for 2010/11 are projected 87 million bushels lower at 745 million. This is down 963 million bushels from last year. The stocks-to-use ratio is projected at 5.5 percent, the lowest since 1995/96 when it dropped to 5.0 percent. The 2010/11 marketing-year average farm price projection is raised 10 cents on both ends of the range to $4.90 to $5.70 per bushel as cash and futures prices are expected to strengthen. Heavy early season marketings of corn priced well below current cash price levels are expected to limit the upside potential for the weighted average price received by producers.

Global 2010/11 coarse grain supplies are projected lower this month with reduced corn, sorghum, oats, and rye production only partly offset by higher projected barley production in Argentina and EU-27. Global corn production is lowered 4.7 million tons with the US reduction and a 1.5-million-ton decrease for Argentina as untimely, persistent dryness during late December and early January reduces yield prospects in key central growing areas. Smaller reductions in corn output are also projected for Indonesia and Turkey, each down 0.4 million tons. Global sorghum production is lowered with a 0.3-million-ton reduction for Brazil based on the latest government estimates. Brazil oats production is lowered slightly in line with government estimates. Russia oats and rye production are lowered 0.3 million tons and 0.4 million tons, respectively, based on the latest government indications.

Global 2010/11 coarse grain trade is lowered as higher expected prices and tighter supplies reduce corn imports and exports. Corn imports are lowered for South Korea, Turkey, and the Philippines, but raised for Indonesia. Corn exports are reduced for Argentina and Turkey, with a partly offsetting increase for Canada. Global corn consumption is lowered mostly reflecting reduced feeding in South Korea and Turkey. Global corn ending stocks are projected 3.0 million tons lower with more than two-thirds of the reduction in the United States.

Oilseeds
US oilseed production for 2010/11 is estimated at 100.5 million tons, down 1.2 million from last month. Lower crops for soybeans, sunflower seed, and canola are only partly offset by increases for peanuts and cottonseed. Soybean production is estimated at 3.329 billion bushels, down 46 million bushels based on reduced harvested area and lower yields. The soybean yield is estimated at 43.5 bushels per acre, down from last year’s record of 44 bushels per acre. Soybean crush is lowered 10 million bushels to 1.655 billion bushels. However, higher projected extraction rates for soybean meal and oil leaves production of both products nearly unchanged. Soybean exports are projected at a record 1.590 billion bushels, unchanged from last month. Soybean ending stocks are projected at 140 million bushels, down 25 million from last month.

The 2010/11 US season-average soybean price range is projected at $11.20 to $12.20, up 50 cents on the lower end of the range. However, early season marketings priced below current cash price levels are expected to limit the upside potential for the weighted average price received by producers. The soybean oil price is forecast at 48 to 52 cents per pound, up three cents on both ends of the range. The soybean meal price is projected at $320 to $360 per short ton, up 10 dollars on both ends of the range.

Global oilseed production for 2010/11 is projected at 440.4 million tons, down 2.3 million from last month. Global soybean production is projected at 255.5 million tons, down 2.3 million. The Argentina soybean crop is projected at 50.5 million tons, down 1.5 million from last month due to lower projected yields. Although recent rains will help producers complete planting, earlier periods of unfavourable dryness have compromised yield potential, especially in some of the major producing areas. Paraguay soybean production is raised 0.5 million tons to 7 million due to increased area and favourable yield prospects. Global oilseed ending stocks for 2010/11 are reduced 2 million tons to 68.3 million with Argentina and US soybean stocks accounting for most of the change

US Grain Exports Continue Despite Korea's FMD
US - US exports to Korea may be slightly affected by a recent bout of foot-and-mouth disease (FMD) but not to the point of great concern, the US Grains Council said.


On 29 November 2010, an outbreak of FMD was first detected in the Republic of Korea and has since spread throughout the country. With more than 100 confirmed cases, this outbreak marks the country’s worst battle with the disease since 2002, which resulted in the slaughtering of 160,000 head of livestock.

The Korean government, led by its Ministry of Agriculture, Forestry and Fisheries (MAFF), has been aggressively engaged, taking significant measures to halt the spread of FMD.

“The Korean government is taking this current outbreak very seriously,” said Byong Ryol Min, USGC director in Korea. “Last week, the government instructed all Korean feed millers and dealers to interrupt feed production and delivery for over 24 hours and implemented a full scale biosecurity measure to mitigate or stop further outbreak of FMD.”

“According to news reports, about 1.5 million animals have been slaughtered thus far, including 120,600 head of cattle or 3.6 per cent of the country’s total inventory. About 1,375,000 hogs have been culled and 4,400 goats and deer. MAFF also decided to vaccinate 210,000 hogs in the infected concentrated hog farming areas.”

While the numbers may seem alarming, Min projected that if no further outbreaks occur in Korea this year, the nation’s total mixed feed consumption will be decreased by 2-2.5 per cent compared to 2010. While this is certainly an unanticipated, short-term disruption in Korea’s demand for feed grains, longer term demand for US grain remains strong.

“Korea imported 5.9 million metric tons (232.3 million bushels) of corn for feed use during January – November 2010, 5.4 million tons (212.6 million bushels) or 92 per cent of which came from the United States. The country also imported 1.9 million tons (74.8 million bushels) of corn for food and industrial use during that same period, of which 1.2 million tons (47.2 million bushels) or 64 per cent is from the United States,” he said.

“Considering the fact that Korea imported nearly 2 million tons of feed wheat during the first 11 months of 2010 and the fact that feed wheat prices will be quite strong in 2011, the disease alone may not badly affect Korea’s feed corn imports from the United States.”

Soy, Corn Prices Need to Direct Consumption, Acreage
US - Over the next three months, the prices of corn and soybeans have two major objectives. Firstly, prices must allocate remaining old crop supplies to maintain at least pipeline stocks by the end of the current marketing year, and second, prices must direct spring planting decisions, writes Darrel Good, Agricultural Economist at the University of Illinois.


For soybeans, the USDA now projects that the combined total of domestic crush and exports during the current marketing year will reach 3.245 billion bushels. That is only eight million bushels, or 0.25 per cent, less than the total of last year. At the projected level of use, year ending stocks would total only 140 million bushels, or 4.2 per cent of total use that includes seed, feed, and residual uses. Year ending stocks cannot be reduced much below 140 million bushels and still maintain pipeline supplies so total use cannot exceed current projections by a substantial amount.

During the first quarter of the current marketing year, soybean crush and exports totalled 1.063 billion bushels, 82 million (8.4 per cent) more than during the first quarter last year. Use during the remainder of the year, then, will be limited to about 2.182 billion bushels, which is 90 million bushels (four per cent) less than use during the same period last year. The pace of consumption clearly needs to decline and that decline has been occurring. The National Oilseed Processor Association estimates the December 2010 crush by their members was 11.5 per cent below that of December 2009. If the national crush was down 10 per cent, the December 2010 crush was 17 million less than in December 2009.

Based on weekly export inspection figures, US soybean exports from 1 December 2010 through 6 January 2011 were 40 million less than that of a year ago. The total of crush and exports since December 1, 2011, was 57 million bushels, or nearly 14 per cent, less than the total of a year ago. Soybean consumption has slowed much more than the approximately four per cent needed to ration current supplies. Consumption for the rest of the year needs to be only 33 million less than that of a year ago.

For corn, the USDA now projects 2010-11 marketing year consumption at 13.43 billion bushels. That is 364 million bushels, or 2.8 per cent, more than consumed last year. At the projected level of consumption, year ending stocks will total only 745 million bushels, or 5.5 per cent of consumption. Stocks cannot be reduced much below that level and still maintain pipeline supplies so total consumption cannot substantially exceed the current projection.

During the first quarter of the marketing year, corn consumption totalled 4.117 billion bushels. That is 253 million bushels, or 6.5 per cent, more than consumed in the same quarter a year earlier. Use during the remainder of the year will be limited to about 9.313 billion bushels, which is only 111 million bushels, or 1.2 per cent, more than consumed during the same period last year. Corn exports from December 1 through January 6 were 21 million bushels (15.4 per cent) larger than during the same period last year. Ethanol use of corn was 55 million bushels (11.6 per cent) larger than during the same period a year ago. Total non-feed use of corn since 1 December was 76 million bushels (13.6 per cent) more than use of a year earlier. Depending on the rate of feed and residual use since 1 December, it appears that total corn consumption during the rest of the year can exceed that of a year earlier by only about 35 million bushels.

It appears that soybean prices have increased enough to ration current supplies but corn prices have not, although the demand for US corn and soybeans will still be influenced by the outcome of South American production. It appears that the Argentine corn crop, and perhaps the soybean crop, could be smaller than the current USDA forecast, further increasing the export demand for both crops.

The prospects for both very tight year-ending stocks of corn and soybeans and a continuation of strong demand implies that 2011 crops need to be large. More acreage of both crops in the US may be needed to meet projected consumption levels at reasonable prices and to start re-building domestic stocks to a more acceptable level.

Planted acreage of all crops in the US declined by 8.3 million acres from 2008 to 2010. At the same time, acreage enrolled in the Conservation Reserve Program declined by 3.4 million acres. These changes suggest that as much as 11.7 million acres of additional crop land (including double-cropped acres) may be available for planting in 2011. Of that total, 3.7 million has already been planted to winter wheat. Double-cropped acreage of soybeans following wheat harvest could increase by two million acres, following a similar decline last year. That leaves six million acres for additional acreage of spring planted crops in 2011. Soybeans may not require any of that acreage due to increased double cropping. Assuming that corn consumption remains near the 13.4 million bushel level next year, that year ending stocks need to expand by at least 500 million bushels next year, and that the 2011 average corn yield is near the trend of 159 bushels, most of that six million acres needs to be planted to corn.

Based on the need to reduce the pace of consumption and to aggressively expand acreage, corn prices likely need to remain high in absolute terms and relative to other crop prices for an extended period.

Australia remains world's 5th-largest wheat exporter 21 Jan 2011
Australia maintained its position as the fifth-largest global exporter of wheat in 2009-10. Exports to China increased in 2009/10 and imports of Australian wheat by Middle Eastern countries decreased, Wheat Exports Australia said.
 
The total global wheat trade reached 127 mt in the international trade year that ended June 30, 2010, WEA said.
 
Australia's top six bulk wheat exporters shipped 9.6 mt and accounted for 79% of total bulk exports in 2009-10. The top four exporters each shipped in excess of 1.0 mt of bulk wheat, accounting for 64% of Australian bulk wheat exports.
 
Position challenged
Historically, Australia has held a position in the top five major wheat-exporting countries, but in recent years this position has been challenged by growing exports from the former Soviet Union states of Russia, Ukraine and Kazakhstan.
 
About 20% of global wheat production is sold internationally, with the trade averaging 115 mt a year in the 10 years ended 2009-10, peaking with growth of 41% to 143 mt in 2008-09, WEA reported.
 
Shifts in trade
The regulator identified other major shifts in the global trade that might have a significant impact on Australia, including changes in demand from China, which as the world's biggest producer, has the potential to significantly impact world trade depending on its production and grain stocks.
 
Australian wheat exports to China nearly tripled to 647,000 tonnes in 2009-10. Middle Eastern countries cut imports to around 10 mt in 2009-10 as a result of an increase in domestic production and stagnant domestic consumption, a contraction that has had a significant impact on Australia's wheat exports.
 
Historically, around 40% of Australia's wheat exports went to the Middle East, but in the five years ended 2009-10 this fell to 2.0 million tons, or 14% of total exports.
 
The Iraq war and past limitations on the Australian wheat trade to Iraq were major factors behind this change, but Australia has also faced increasing competition from traditional rivals such as the US and Canada, and newer competitors, such as India.
 
However in 2009-10, Saudi Arabia almost ceased domestic wheat production and has recommenced importing, wheat offering further potential for Australian exports to the region.

Weekly Outlook: Corn, Soybean Supplies for 2011
US - The USDA projects that corn stocks at the end of the 2010-11 marketing year will total only 745 million bushels, writes Darrel Good, agricultural economist at the University of Illinois.


That projection represents 5.5 per cent of projected marketing year consumption. Stocks as a per cent of consumption would be the smallest since the record low 5 per cent of 1995-96. Five per cent is considered to be a minimal pipeline supply.

Marketing year ending stocks of soybeans are projected at 140 million bushels, or 4.2 per cent of projected consumption. That ratio is slightly smaller than the previous low of 4.4 per cent in 2003-04. The low level of inventories projected for this year reflects different market conditions than those that existed in either 1995-96 or 2003-04. Both of those years were characterized by small crops that required a sharp reduction in the level of consumption just to maintain minimum year ending stocks. Year-over-year consumption of corn declined by 8.5 per cent in 1995-96 and soybean consumption declined by 9.5 per cent in 2003-04.

In contrast, corn consumption during the current marketing year is expected to be 2.8 per cent larger than the record of last year. Soybean consumption is expected to be about equal to last year’s record. The low level of expected year ending corn stocks are the result of a 2010 corn crop that was 5 per cent smaller than the record crop of 2009 and a rapid acceleration in the use of corn for ethanol production. The 2010 soybean crop was only 0.8 per cent smaller than the record crop of 2009. Stocks at the beginning of the year, however, were small and exports are expected to be record large. Exports are increasing primarily as a result of strong Chinese demand.

Strong US and world crop demand, scattered production problems in 2010 and early 2011, and prospects for generally tight stocks have pushed corn and soybean prices high enough to raise concerns about more rapid food price inflation. The question now is whether the year ahead will bring some change in the tight supply/high price scenario. Much of the attention will be on the prospective size of the 2011 US corn and soybean crops and the level of demand for those crops.

First a look at corn demand prospects for the 2011-12 marketing year. There is likely to be some further weakness in domestic feed demand resulting from current high feed costs and further liquidation of livestock numbers. Export demand is more difficult to anticipate due to the uncertainty of world grain production, the pace of economic growth, and trade policy. Demand at the same level as this year may be the best forecast. The level of use of corn for ethanol production may be the most important factor. Use during the current marketing year is expected to be well above the level required to meet renewable fuel mandates. The mandates for 2011 and 2012 would require about 4.7 billion bushels of corn to be used for ethanol production during the 2011-12 marketing year, or 200 million less than expected to be used this year. Use could exceed the mandate again next year if blending economics remain favorable. Corn consumption in 2011-12 could decline by 100 to 300 million bushels from the projected level for this year.

A 200 million bushel decline would put total corn consumption at 13.23 billion bushels in 2011-12. With a trend yield of 159 bushels in 2011, harvested acreage would need to total 83.2 million acres to produce 12.23 billion bushels of corn. Planted acreage would need to be near 90.3 million, 2.1 million more than planted in 2010. If demand is stronger than expected and/or stock rebuilding is to begin and if there needs to be some allowance for yield risk, planted acreage may need to be in the range of 92 to 93 million acres.

Demand for US soybeans in 2011-12 is likely to remain strong due to a modest production shortfall in Argentina this year and continued strong Chinese demand. If consumption remains near 3.35 billion bushels and the 2011 US average yield is near the trend value of 43.2 bushels, harvested acreage will need to total about 77.5 million acres to maintain pipeline supplies at the end of the 2011-12 marketing year. Planted acreage would need to be near 78.5 million, 1.1 million more than planted in 2010. To allow some modest rebuilding of stocks and to allow for yield risk, planted acreage may need to be near 79.5 million. Additional double cropping will help meet the need.

It appears that combined acreage of corn and soybeans needs to increase about 6.5 million acres in 2011 to allow for some modest rebuilding of US inventories. A smaller increase would require above trend yields to avoid another year of very tight supplies.

China Likely to Limit Corn Imports Soon
CHINA - China, the world's second-biggest corn consumer, may limit imports this year after the government told industrial users to stop buying the domestic supply, according to Yigu Information Consulting Ltd.


Starch and ethanol producers use about 40 million tons a year, so a temporary halt in purchases may free material for the livestock industry, said Feng Lichen, general manager of Yigu, which runs the country's biggest corn information portal.

China imported 1.57 million tons of corn in 2010, according to customs data, the most in about 14 years, as the government sought to cool food inflation running at 9.6 per cent in December. The country may boost purchases "to upward of" 7.4 million tons this year, said Thomas Dorr, president of the US Grains Council, in December.

"China isn't yet at a stage where it must use imports," which at the moment are more expensive than domestic supply, Mr Feng said from Dalian.

The State reserves were given priority to buy corn at below-market rates while other users, including biochemical producers owned by COFCO Ltd, were ordered to halt procurement, Mr Feng said on 17 January. These companies have now stopped buying, Grain.gov.cn said on Thursday.

The government is concerned about pork supply for the people, so this policy essentially ensures domestic supply can meet livestock use, he said.

Industrial users consume about 4 million tons of corn a month so "a couple of months of their consumption" will likely meet the reserves' goal of boosting inventory by around 10 million tons, Feng said.

China produced 164 million tons of corn in the marketing year ended 30 September, with 99 million tons used by the livestock industry and 45 million tons by producers of bio-chemicals, data from the China National Grain & Oils Information Center show.

Buying by trading companies, which stockpile the grain as part of their operations, has also stopped as the government restricts their financing, so purchase prices may come down to where the State reserves will start buying, Mr Feng said.

Most of the imports last year came from the United States, customs data show. Import estimates for this year from analysts including Feng and Shanghai JC Intelligence Co range from 1.5 million tons to 5 million tons. The exact level will depend on how much corn is planted and crop development, Mr Feng said.

As of Tuesday, the post-tax cost of so-called No 2 yellow US corn shipped into Chinese ports for March delivery was about 2,562 yuan ($389), according to industry website Jcce.cn. The spot price in southern China was 2,160 yuan a ton, according to data from Shanghai JC Intelligence Co.

Japanese feedstuff manufacturer cuts corn in animal feed 26 Jan 2011
Chubu Shiryo Co Ltd, a leading Japanese feedstuff manufacturer, has started making some animal feed with less corn as the price of corn continues to rise, a company official said on Monday.

According to Reuters, the official said that the move will not immediately affect the volume of Japanese corn imports, though this could change when the company starts reducing corn volumes in a broader range of feeds.

Chubu Siryo started feed shipments for egg-producing chickens this month, with the use of corn cut from 50% to 30%, the average mix in compound feed for chickens in Japan, the official said. It plans to extend the move to feed used for pigs as well, although the official declined to set a timeframe for this.
 
The company increased the proportion of alternatives, primarily corn meal and wheat bran, without damaging the nutrition quality, helped by a processing technology the company has developed to improve the cost of processing feed from meal, he said.
 
"Our improved processing facility has enabled us to beef up the recycling of meal, which hadn't been done previously, as a way to contain the cost of rising corn prices," the official said, adding that the company aimed to eventually reduce the use of corn to around 10%.
 
Japan's annual compound feed output is about 24 million tonnes. About 40% of compound feed is for chickens and 25% for pigs.

Thursday, March 10, 2011Print This Page
CME: Pre-Report Estimates for Latest USDA Reports
US - USDA’s Crop Production and World Supply and Demand Estimates (WASDE) reports will be released today (Thursday) at 8:30 a.m. EST, report Steve Meyer and Len Steiner.


The table below shows analysts’ pre-report estimates for some of the key numbers regarding corn, soybeans and wheat. Note that we pulled the US estimates from Dow Jones’ survey (19 observations for corn and beans, 17 for wheat) and the world estimates for the survey by Reuters (8 observations for wheat and soybeans, 9 for corn).


As expected, none of this month’s estimates are significantly different from those of last month. Analysts apparently expect high prices to have a small impact on corn and soybean usage.

By far the most optimistic number in the table is the one for projected year-end world soybean stocks, which is roughly 1 million metric tonnes higher than last month. That number is driven primarily by an expected increase in the Brazilian soybean crop. A separate Reuters survey indicated that analysts expect the 2011 Brazilian soybean crop to be 69.781 million metric tonnes, 1.281 MMT higher than USDA’s February estimate. The analysts estimate that Argentina’s soybean crop will fall slightly from last month’s 49.5 MMT to 49.198 MMT. Analysts expect Brazil’s corn crop to remain steady at 51 MMT while the Argentine corn crop is expected to be 20.857 MMT, 5 per cent lower than last month’s USDA estimate of 22 MMT.

The trade will now focus on USDA’s March 31 Planting Intentions report to get its first real picture of 2011 US corn, soybean, wheat and cotton output. We again mention cotton because it will be a major player in acreage allocation decisions this year, especially in Southeastern states.

Planted acres may be step one but yields make or break a crop and there is plenty of concern about this year’s potential yields in light of the ongoing La Nina event. Iowa State University climatologist Dr. Elwyn Taylor pegs the “most likely” US corn yield for this year at 148 bu./acre. That is only 1 bu./acre higher than the poor weather yield from Darrel Good and Scott Irwin’s University of Illinois paper that we discussed yesterday. According to Dr Taylor, the ongoing La Nina is the third strongest on record, trailing only those of 1974 and 1989. The 1974 episode strengthened in March of that year and resulted in unfavorable yield conditions that summer. The ‘74 yield was roughly 16 bu./acre below the trend yield. The 1989 event declined in March and dissipated by June. 1989 corn yield was virtually even with the trend yield for that year.

Why is the US beef industry not responding to positive signals and showing signs of expansion? Or even more to the point — why did US cowmen liquidate so many cows last year when cow-calf operations were generally profitable and expectations should have been positive? Those questions have been batted around by a number of analysts over the past year and the first one was the subject of Dr. Derrell Peel’s March 7 “Cow/Calf Corner” published by the Oklahoma Cooperative Extension Service. Peel states that “The market is clearly trying to encourage cow-calf producers to rebuild cow herds. Yet there is no definitive indication that producers are retaining heifers at this time.” He offers two reasons for cowmen’s reticence:

Excitement with current price levels but general skepticism that these prices will last. This feeling that current prices are a short run aberration which will soon be followed by a market correction belies the fact that the supply fundamentals underpinning the current market have been building for several years. He also points out that beef demand, though in his opinion not recovered from recessionary weakness, is moving the in the right direction. Add in strong export markets and he believes there is ample evidence that this is not short run price strength.


Serious concerns that input prices will continue to increase and thus erase the profits gains from higher cattle prices. Peel observes that there is some fatalism in that belief — ie. no mater what a producer does, there is limited (or no) profit potential in cattle. But he points out that high cattle prices provide an opportunity to manage profitability by controlling things that can be controlled. “Agricultural producers have always had more opportunity to influence profitability by managing costs than by changing market prices,” he points out. Rising input prices beget adjustments and cattle are very flexible critters. Cowmen need to think broadly.