Will We Make Targets?

November 24, 2009 06:00 PM

The following information is bonus material from Top Producer. It corresponds with the article "A Mixed Bag” by Linda Smith. You can find the article in the December 2009 issue.
All the cards are in place for a winning export year for 2009/10: Crop prices are expected to average below those for the 2008 crop, a weak dollar makes U.S. products cheap to foreign buyers, fuel and freight rates are down and there are signs the worldwide recession may be abating. Thanks to aggressive purchases by China, soybeans are exceeding implied expectations. But corn is chugging along, not much changed from last year and wheat is downright dismal. Here's what experts see ahead.
Soybeans. As of mid-November, soybean exports were running 10% ahead of the same period last year. "U.S. soybeans continue to roar ahead, with the U.S. as the sole global exporter in 2009/10,” says Doug Whitehead of Rabobank, based in London. "A lack of available exportable surpluses in other countries, particularly Brazil and Argentina have allowed shipments to track 13% above the five-year average. The challenge for the U.S. will be to ensure actual soybean shipments are front-ended so sales aren't switched to South America when their new crop is harvested early in 2010.” Should we lose momentum, it is possible the U.S. ending stocks-to-use ratio could exceed 10% for the first time since 2006/07.
Bill Biedermann of Allendale adds this caution: World soybean stocks are pegged at 57 million metric tons—35% above last year's 42 mmt and the 10-year average of 43%. "That is equivalent to2.1 billion bushels or two-thirds of a U.S, crop. If you placed 35,000-bu. bins side by side from Chicago to Omaha, you still would not have enough bins to store all those beans. End users have little reason to pay up.”
Corn. "Increased competition from Ukrainian corn and feed-quality wheat from the Black Sea--mostly Ukraine, Russia and parts of the EU--is contributing to a slowdown in U.S. exports and sales,” says Allen Baker, USDA economist. "Also playing a role are the continued flow of exports from South America, the slow pace of U.S. harvest, concerns about U.S. corn quality and increases in prices partly influenced by funds investing in commodities as a hedge against inflation.”
"Corn exports have been sluggish this season, despite the exchange-rate benefit of the devaluating U.S. dollar,” says Whitehead. "USDA reflected this in November by reducing its forecast by 50 million bushels. Still, it looks highly unlikely final exports will reach USDA's goal, with exports at this stage 33% below the five-year average.
It is early in the marketing year, Whitehead acknowledges. "However, to reach USDA's forecast, weekly corn exports will need to exceed the five-year average by 10% the remainder of the year. Due to strong competition from an abundance of alternative feed grains, Rabobank believes the catch-up needed is unlikely to materialize and USDA will make further reductions in exports.”
China could be a wildcard this year, says Jerry Gulke of Gulke Group: "USDA did not lower the Chinese corn crop to levels suggested by private firms in its November report, so another 5 to 10 mmt reduction is still possible. My corn export estimate for next year does not yet include any Chinese imports from the U.S., although it did buy from Thailand this fall. With compound feed usage rising 17% year-over-year the past two years, it seems it is not if but when China buys corn or more DDGs from the U.S. Such a move, perceived or reality, would send corn prices much higher. Expect any such action to become evident after Jan 1. China last purchased corn from the US on Dec 6, 1995!
Wheat. Prospects for wheat exports are bleak, according to Whitehead. "USDA revised U.S. exports down by 25 million bushels—a 31% drop in two seasons and significantly below the five-year average. Exports are also lagging recent years at this stage of the season, with the U.S. continuing to battle for price competitiveness despite the weakness in the dollar.”
To reach USDA's forecast, U.S. exports will need to reach 12.1 million bushels per week the remainder of the marketing season, well above the five-year average he says. "This appears highly unlikely given a robust Australian wheat crop, ensuring competition in Asian markets. We expect USDA to revise its estimates lower over the coming months, increasing stocks and weighing on prices.”
In fact, he says, "if U.S. wheat is to become more competitive on the world market, prices would need to fall significantly relative to Black Sea and EU prices. U.S. soft red winter wheat export prices FOB the Gulf for shipment to Egypt were 22% above Russian prices and 13% above EU prices.”
"World stocks are burdensome at 188 mmt and that is massively bearish at recent prices. Using historical price standards, futures should be in the $4.50 area,” says Biedermann.
Linda H. Smith

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