Coarse grains

by Meyer Sosland
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Export prices for U.S. maize surpassed $210 per tonne in mid-January, and buyers should expect little relief through the U.S. spring planting season, according to market analysts. Despite the largest U.S. maize harvest on record planted on the largest area since 1944, a number of bullish factors have come into play.

The supply/demand report released in January by the U.S. Department of Agriculture (USDA) put final 2007-08 U.S. maize output at a record 332.09 million tonnes, but the figure was lower than previous estimates. The USDA cut its figures for harvested area and yield, prompting the decline in production.

Also in the January report, the USDA reduced its projection of U.S. ending stocks, to 36.5 million tonnes, marking the third decline in that estimate in as many months. The reduction was based on the lower production figure and a 7-million-tonne jump in projected U.S. domestic use to a record 266.8 million tonnes.

The consumption figure includes feed use of 151.1 million tonnes, only 5.3 million off the record set in 2004-05, and the third-highest level ever. Food, seed and industrial use should account for a record 115.7 million tonnes of total use, 31% higher than in 2006-07.

Meanwhile, tight exportable supplies of coarse grains among global sellers during the current season — along with expected record global exports of 94.34 million tonnes — have kept demand strong for U.S. maize. The USDA’s January estimate of U.S. maize exports was 62.23 million tonnes, up 15% from the previous season and a record high.

The changes in the U.S. maize balance sheet left estimated 2007-08 U.S. ending stocks at 36.52 million tonnes. Although that figure is about 3 million tonnes higher than in 2006-07, it was a 1-milliontonne cut from the previous estimate, and more significantly, pushed down the ending stocks-to-use ratio to 13.7% from 17.5%, representing the fifth-tightest supply outlook since at least 1960 when USDA’s historical database begins.

The unexpected cut in ending stocks served as the spark to push maize prices over $210, especially as the market absorbed other influences. Those ranged from a U.S. credit crisis, a plunging stock market, a weakening U.S. dollar, record-high prices for other commodities and heightened inflationary fears.

For maize fundamentals, new U.S. energy legislation in December was signed into law that raises the renewable energy standard, primarily for maize-based ethanol, by more than six-fold over the next 15 years. With maize for ethanol production — at 81.3 million tonnes in 2007-08 — already accounting for 30% of total U.S. maize use, the market’s concern over adequate supplies intensified.

Among the biggest uncertainties confronting the maize market in the next few months is the area that will be planted for the 2008-09 crop. USDA projections of tight 2007-08 soybean ending stocks imply that large crops for both maize and soybeans markets are needed in 2008, setting up price competition between the two crops for planted area.

Indeed, the run-up in maize prices corresponded with the historical onset of "beans in the teens," where soybean prices surpassed $13 a bushel ($478 a tonne) for the first time. The price moves signaled the fight to come over plantings.

Historically, the "normal" soybean-maize price ratio has stood at 2.45-2.5 to 1 (soybean price at 2.45-2.5 times the maize price), where growers tend to follow a 50/50 crop rotation pattern. As of mid-January, new crop maize and soybean futures were trading at a ratio of about 2.4, premium soybeans.

Given the supply/demand situations for both crops, analysts say the battle for plantings is bound to rage on and will limit each market’s ability to move independently. If soybean prices remain strong, maize will have to follow.

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