Coarse grains

by Chris Lyddon
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Tight supplies in the near term have put a firm tone into the U.S. maize market, but the expectation of a large crop in 2013-14 has pushed new crop futures lower.

“While quotations in Argentina drifted lower on seasonal pressure, U.S. and Black Sea prices were firm on tightening spot supplies,” the International Grains Council (IGC) said in its March Grain Market Report.

“Despite China’s bumper harvest and potentially record-breaking crops in Brazil and Argentina, world output is forecast to fall by 3% year on year in 2012-13 due to drought in the U.S. and parts of the E.U.,” it said. “However, assuming normal weather, production is projected to rebound sharply in 2013-14, with U.S. output increasing by as much as 30% year on year.”

In a look at U.S. maize prices, the IGC described nearby futures as extremely tight.

“Domestic cash markets have been firm in recent months, with buyers having to increase bids in order to encourage producers to part with remaining supplies,” the report said. “Maize cash prices remain well above historical norms for this time of the year, trading at a premium to futures in some leading processing areas.

“With spot maize supplies increasingly difficult to source, there are also reports that some ethanol plants are considering including more wheat and sorghum to produce biofuels,” the IGC said. “However, sorghum availabilities are also tight and some difficulties using wheat in plants designed to process maize could mean that overall substitution may be quite limited.”

The IGC explained that “expectations for a large 2013-14 crop and a sharp rebound in supplies have resulted in a widening of old and new crop futures spreads in recent months. While nearby maize futures have increased by around 6% since the start of this year, new crop (December) futures have recorded 6% losses over the same period,” the report said. “Spreads between old and new crop futures are unusually wide and significantly larger than in recent years.”

The IGC is expecting the largest ever world maize crop in 2013-14.

“Assuming normal weather conditions, average yields are likely to rebound to 5.3 tonnes per hectare (4.9 tonnes per hectare), with production forecast at a new record of 927 million tonnes, 9% higher than in 2012-13,” it said.

“In the U.S., plantings are expected to increase further in response to attractive prospective returns, particularly relative to spring wheat,” the IGC said. “The sown area is projected at about 40 million hectares, 2% higher than in 2012-13. Based on average abandonment of 8%, the harvested area is forecast up 4% year on year at 36.8 million hectares.”

“Despite heavy snowfall in February, spring precipitation will be crucial in the drought-affected areas across the northern Great Plains and much of the Corn Belt, notably South Dakota, Nebraska and Iowa,” IGC reported. “Early forecasts for the summer indicate a high probability of dry and warm periods. Assuming a return to five-year average yields of about 9.7 tonnes per hectare, production is placed 30% higher year on year, at a record 357 million tonnes.”

Rabobank, in a market commentary published in mid-March, warned about the risks.

“Although recent precipitation in the U.S. has begun to alleviate drought conditions, we believe current values do not fully reflect the production risks which remain, with 36% of the U.S. still in severe/exceptional drought,” Rabobank said.

It described the U.S. futures markets as being in “a similar situation to the beginning of 2012 when speculative selling accompanied overly optimistic U.S. Department of Agriculture (USDA) production forecasts and caused nearby CBOT Corn to drop below $6 per bushel before rallying to more than $8 per bushel.”

Elsewhere, the IGC noted mixed trends.

“While nearby prices were sometimes unavailable in South America, quotations in Argentina drifted lower on seasonal pressure,” the IGC said. “Black Sea markets were firm due to tightening spot supplies.”

In the Black Sea region, stocks have become tighter after recent strong sales, while movement has slowed as farmers begin planting.

“Although export premiums in Argentina were volatile, prices generally eased on seasonal factors,” it said. “Quiet export demand was bearish, as some buyers in Latin America opted to see if prices would weaken further.”

In Brazil, harvest pressure meant lower prices. “Reflecting logistical problems and a heavy soybean export program, spot fob prices were unquoted,” IGC said.

Prices in China “were weaker on sluggish processing demand, while problems with mold and high moisture levels in some crops harvested in the northeast also weighed on values,” the IGC said. “Nevertheless, with local prices still comparatively high, a number of cargoes of new crop U.S. maize were recently booked for delivery.”