Coarse grains

by Chris Lyddon
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A combination of higher than expected stocks estimates and worries about the wider macroeconomic picture have kept the pressure on maize in recent weeks.

“After slumping to a 10-month low in early October, U.S. maize (corn) futures showed some recovery but still dropped by a net 7 percent since the last Market Report,” the International Grains Council (IGC) said in its most recent report on the market. “Financial market woes initially weighed heavily on prices, but declines accelerated following the U.S. Department of Agriculture’s (USDA) much higher than expected quarterly stocks estimate (on Sept. 30), with nearby positions falling by their daily trading limit.

“The drop below $6 per bushel was short-lived, however, as renewed speculative fund buying contributed to a mild recovery in subsequent weeks, bolstered by signs that lower prices had stimulated export sales to Asia, notably China. Nevertheless, activity in futures during the second half of October was generally light, with values trading in a much tighter range and movements mainly tied to non-fundamental factors, including concerns about the European debt crisis.

“Although Gulf export premiums were at first lifted by slow producer selling, basis levels came under increasing seasonal pressure later in October. Reflecting the drop in futures, nearby export prices (as of Oct. 26) were around $16 lower than in late September, at $276 fob.”

Prices in Argentina were supported by firm export demand, with the government authorizing an additional 2.5 million tonnes of export licenses since last month, the IGC said.

“However, under pressure from weaker U.S. futures, Up River quotations declined by $3, to $280 fob,” the IGC said. “In Brazil, price trends in the domestic market were mixed, with reduced local demand mildly pressuring values in late October. Despite some support from generally strong third-country demand, Paranagua export quotations fell by around $10 since the end of September, to $278 fob.”

The IGC also relayed reports that Sinograin, which manages state reserves, had purchased up to 1.5 million tonnes from the U.S. and/or Argentina, for March-May shipment.

“Although the business was not officially confirmed, private U.S. exporters reported the sale of 900,000 tonnes to China,” it said. “Local prices were initially weighed by plans to release more from state reserves. And with new crop harvesting pressuring later in the month, Dalian quotations fell by 4%.”

In the November World Agricultural Supply and Demand Estimates report from the USDA, there were reductions in the forecast maize crop for a number of countries, led by Mexico where the production forecast was cut by 3.5 million tonnes to 20.5 million.

“Increases in 2011-12 corn production for a number of countries partly offset reductions in Mexico, the United States and Serbia. Corn production is raised 2.5 million tonnes for China, with increases in both area and yields in line with the latest indications from the China National Grain and Oils Information Center.”

The USDA also raised its figure for E.U.-27 maize production by 1.9 million tonnes to 62.85 million, “mostly reflecting higher reported output in France, Romania and Austria.”

It added 1.5 million tonnes to its forecast for Argentina on higher than expected area, bringing it to 29 million tonnes. FSU-12 production is raised 700,000 tonnes with higher reported yields in Belarus and Russia.

“There are also a number of production changes this month to corn and sorghum production in Sub-Saharan Africa which reduce coarse grain production for the region,” it said.

Rabobank published an analysis calling the WASDE report neutral/bullish.

“Macroeconomic uncertainty remains the key driver of agricultural markets despite today’s fundamental adjustments from the USDA,” the bank’s analysts said. “There were few surprises in today’s November WASDE report, with prices expected to ease in the face of a stronger U.S. dollar and flight to safety.”