Coarse grains

by Chris Lyddon
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Volatility continues in the maize (corn) market. At the time World Grain went to press in late July, bullish factors, notably the weather in the main U.S. growing areas and a WASDE report which showed record corn use for ethanol, were having the biggest impact on prices.

When the International Grains Council (IGC) prepared its monthly report for publication on June 30, maize had registered sharp declines, “but only after setting new highs in early June on U.S. crop worries, with new data showing plantings would fall short of earlier forecasts.”

“This was followed by a substantial sell-off in Chicago futures, largely triggered by Greek debt concerns but also due to a subsequent improvement in weather conditions, declines in other grains and crude oil and indications of weakening support among U.S. legislators for the ethanol tax credit and import tariff,” the IGC said. “Larger than anticipated official U.S. plantings and stocks figures June 30 triggered a further wave of selling activity.”

Then the USDA’s World Agricultural Supply and Demand Estimates report changed the tone of the market.

“The USDA changed gears yet again with the July WASDE providing a bullish surprise for the corn market after very bearish reports just two weeks ago,” was the analysis from Rabobank. “The USDA reported U.S. corn ending stocks below market expectations for the 2010-11 and 2011-12 seasons, while carryover stocks for world corn, wheat and soybeans are forecast to decrease year on year, illustrating the tight fundamental outlook that we have been highlighting for some time.”

The July WASDE forecast higher corn demand and lower ending stocks, with corn usage for ethanol expected to outpace domestic feed usage for the first time in history.

“Global coarse grain supplies for 2011-12 are projected 10.3 million tonnes higher, mostly on higher corn beginning stocks and production in the United States,” the WASDE report said. “Foreign coarse grain beginning stocks changes are mostly offsetting, with corn carryin lowered 500,000 tonnes for Canada and barley carryin raised 200,000 tonnes and 300,000 tonnes, respectively, for Argentina and Australia.”

The report also had a raised estimate — by 1.3 million tonnes — for world barley production, with increases of 1 million tonnes for Russia, 800,000 tonnes for Turkey, 400,000 tonnes for E.U.-27, and 200,000 tonnes for Argentina. Partly offsetting is a 1-million-tonne reduction for Ukraine barley.

For the U.S., the USDA raised its maize production estimate by 270 million bushels (6.9 million tonnes) to 13.47 billion bushels (342 million tonnes) based on planted and harvested area as reported in the Acreage report.

“Corn use for ethanol is raised 100 million bushels with larger supplies and an improved outlook for ethanol producer margins,” it said. “Exports are raised 100 million bushels, mostly reflecting increased demand from China.”

Rabobank highlighted the fact that the USDA had increased its estimate of ethanol corn use for the 2010-11 season from 5 billion bushels (12.7 million tonnes) in its June estimate to 5.05 billion bushels (12.83 million tonnes) in July.

“This will be a record-high ethanol use of corn, and it is also the first time in history that more corn is expected to be accounted for by ethanol production than feed usage in the U.S.” it said.

This is projected despite the risk that a number of industry support systems, including the 45-cent-per-gallon blenders credit and the 54-cent-per-gallon import tariff maybe scrapped.

The bank also noted that the U.S. corn yield estimate had been left unchanged at 158.7 bushels per acre (9.96 tonnes per hectare) “with the weather market likely to be the key determinant of prices over the next couple of months.”

“It is worth noting that the USDA is currently forecasting the third highest yield on record, with only the 2009-10 and 2004-05 seasons exceeding the current USDA estimate, despite significant planting delays and recent adverse hot/dry conditions,” the bank said.