Rainfall, world grain stocks will drive markets, analysts say
It didn't take long for world grain stocks and domestic moisture concerns -- mainly in the southern Corn Belt and Delta regions -- to overshadow the latest USDA Crop Production numbers released Friday morning.
On one hand, analysts say there won't be a shortage of buyers and processors for the U.S. corn crop -- pegged by USDA Friday at 13.054 billion bushels with an average yield of 152.8 bushels per acre. This means corn marketplace dynamics likely won't change dramatically through harvest. "We have such a large corn crop, but we're going to use it," says Al Kluis of Kluis Commodities.
On the other hand, the soybean supply and demand picture is less cut-and-dried, for a number of reasons, analysts say. First, a great deal depends on the weather forecast in the coming weeks. The soybean crop in the southern third of the Corn Belt and in the Southeast needs moisture soon if yield losses are to be avoided.
"If they don't get rain in the next six to 10 days in the Delta and the lower one third of the Corn Belt, we could have yield losses, some dramatic," says James Bower of Bower Trading, Inc. "I think the verdict still has a long way to go, especially with soybeans."
A drought-shortened soybean crop this year could force production elsewhere in the world in order to meet the growing demand for the crop, especially given the fact this year's U.S. crop is pegged at 2.653 billion bushels, 18% below last year's production.
"If you look at soy numbers by themselves, the ending stocks for 2008, even based on a 41.5 bushels-per-acre yield, are still dangerously low," Bower says. "There's an increase in global demand for soybeans, so somebody's going to have to make up the acreage loss we've had this year, but the price is going to have to go high enough for that South American producer to grow more beans."
If heading south is the answer to meeting growing global demand for soybeans and soy products, a few things need to happen, namely a climb in the U.S. soybean market, says CME broker and market analyst Noel Blue.
"The market for soybeans needs to remain at and above current high price levels to inspire Brazil to increase soybean production. But, their currency is far too strong to make Brazillian producers want to do so until they see $10 beans," she says. "October 15 is a critical decision-making date deadline for determining whether or not Brazilian producers are going to amp up their soy production enough to make up for world soybean demand."
Meanwhile, wheat and coarse grain stocks in Europe are at near-record lows, the latter pegged Friday as 200 million tons lower than its peak in 2000, according to Richard Feltes of MF Global, who called the EU wheat export figure the "most shocking number."
"My commercial contacts in the trade think the EU wheat export number is too high. That puts the U.S. wheat carryover in jeopardy," Feltes says. "With the spread between U.S. and EU wheat at record levels, the U.S. has to go up and close the record gap."