Rabobank is Cautiously Optimistic about 2011 Global Economy

December 10, 2010 07:29 AM

Global bank foresees an intense battle for acres in 2011-12

Tempered by 2010’s “uneven growth” in the global economy, Rabobank economists in Australia and New Zealand remain “cautiously optimistic” about the global economic outlook for 2011, the bank reported in its December 2010 Agribusiness Review released today.

“Macroeconomic events are to blame for much of the recent instability in global commodity and equity markets,” Rabobank noted. “The demand threat of building inflation issues in China, wobbles in the European banking sector and mixed data from the U.S. contributed to a reappraisal of risk by markets in mid-November. As a result, the U.S. dollar jerked upwards, and equity markets and commodity prices slumped. “

Even so, the flow of economic data has since evened out, added Rabobank.  India’s Gross Domestic Product revealed healthy growth and Chinese manufacturing data was stronger-than-expected.

Globally this year, China and India have outperformed other major economies. Uncertainties still lurk in the U.S., Western Europe and Japan, said Rabobank.

Of most concern are downside risks stemming from emerging economy inflation concerns, continuing issues in the European banking sector, and persistently high U.S. unemployment, the report said.

In the dairy sector, international dairy commodity prices drifted upwards for a third consecutive month, through November. Prices now sit approximately 5% above early September levels on a weighted-average basis.

Rabobank said around half of the upward drift in dairy prices can be explained by a moderate fall in the value of the U.S. dollar over the same period (down 2.3% on a broad index basis over the same period), suggesting market fundamentals have actually changed little.

Recent supply growth in key export regions has been in line with expectations for a strong growth spurt. Outperformance in the Northern Hemisphere has offset weather-disrupted spring peaks in New Zealand and Australia. Milk production in the world’s big six export regions continued to track more than 3% above prior year levels in September.

“The upward bias evident in international pricing, despite such a wave of milk supply growth, tells us much about the ongoing strength of import buying, with China and Russia continuing to lead from the front,” the Rabobank analysts noted.
With the 2010/11 season characterized by unfavorable weather conditions, Rabobank said the balance sheet remains tight for corn, barley and, to a lesser extent, wheat:

• Corn’s global stocks-to-use ratio is forecast to drop to 13.9% by the end of 2010/11, and to a precariously low 6% in the US.

• Wheat’s global stocks-to-use ratio is expected to be well above the low stocks recorded in 2007/08. Stocks in the traditional exporting countries are expected to drop to 15%.

• Oilseed stocks are also set to tighten on the back of strong demand, despite a record soybean harvest. There will be no room in the balance sheet for a poor South American soybean crop.

“This tight crop balance will set the stage for an intense battle for acres in 2011/12, as corn will compete for area with soybeans, not just in the U.S., but globally,” the report said. “As such, we expect that grains and oilseed markets will need to move higher to provide the incentive for farmers to expand and elicit the area needed to alleviate the tight balance sheet. “

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