What a ride it has been for agri commodities!
Once considered the dullest of plays, the bullish year that was 2007 saw investors sit up and take notice as prices for maize, wheat and soy rose to record highs on the back of poor harvests and strong competing demands.
Quiet for now
Things have quieted down significantly since mid-2008 when prices rose to new all-time highs of over $6/bushel for maize and $13.80 for soya beans.
Maize prices slid to $4 a year later, hovering at $3.50 in the second half of last year and staying range-bound at about $3.20 towards the end of the third quarter.
As all eyes were on how harvests would pan out in the key Northern Hemisphere regions, better than expected yields and output in the US, EU-27, Ukraine and Canada have partially offset the poorer harvests in China and Russia to improve overall global maize production. Such growing global harvests shaved about $1/bushel off prices between the second and third quarter.
The U.S. Department of Agriculture’s October World Agriculture Supply and Demand report put current global maize production at close to 1.3 million metric tons (MT) higher than in 2008/09.
Despite lower estimates for maize supplies for the marketing year, larger world wheat stocks and slower trade for both import and exports of coarse grains are expected to continue exerting some downward pressure on maize prices. Prices could, as a result, exhibit some volatility, moving into a trough at year-end before picking up in the first quarter of 2010.
8% more soya
For oilseeds, a forecast of 429 million MT, or an increase of almost 8% on year, puts an ample figure to 2009/10 world production.
In particular, soya bean production rose in the US, Argentina and Paraguay, as better-than-expected yields helped allay earlier worries of uncooperative September weather.
For Argentina, expectations for the 2010 harvest call for a sharp turnaround from last year’s drought-reduced harvest. Forecasts for increased supplies from the US, Brazil and Argentina year-on-year have also eased concerns of a tight supply situation in the old crop soya bean market.
Chart: Imports of key Asian feed commodities
As with maize, better-than-expected production has eased the pressure from soya bean prices into the harvest months, which has since fallen to under $10/bushel from the second quarter’s high of $11.30. The USDA reported the season-average price range for soya bean higher by 20 cents, at $8.20-$10.20 per bushel in November, nudged up no doubt by a robust export demand coming from Asia, the EU-27 and Russia.
Argentina’s impressive acreage increase of 12% from the previous year is also giving a strong indication of bountiful supplies from the Latin American producer, which WASDE estimates at over 50 million MT for the 2009/10 marketing year.
In addition, higher rapeseed production mainly in the Western Hemisphere will also loosen any grip on overall oilseed prices at least for the rest of this year. EU-27 rapeseed production is estimated to hit a high of 20.6 million MT and Canada at 10.5 million.
Strong demand
Favorable maize prices are likely to spur demand in the current crop marketing year, which WASDE has estimated at 800 million MT for 2009/10. Besides a slight increase in demand from the animal feed and ethanol production, maize exports worldwide are also expected to receive a boost from the current price weakness.
Global demand for soya beans continues to be robust with estimates for US exports of the 2009/10 crop looking strong. Some have put exports at a high of 27 million MT in the first half of the marketing year with good forward sales adding evidence of brisk export demand.
This could nudge soya bean prices up in January. Supplies could potentially tighten in early 2010 with prices easing only in April when Latin American soya beans are released onto the market.
On all counts, analysts feel that the outlook for soy is leaning towards a bearish one. Jay O’Neil, a senior agriculture economist at Kansas State University suspects that prices for both grains and oilseeds were likely to bottom out sometime by the mid-fourth quarter 2009.
“It’s hard to be bullish about maize or soybeans at this time and buyers should take advantage of excellent low prices,” he says.
Despite the current price weakness, chances of a price rally moving into December 2009 remained slim, as world ending stocks for both soya beans and wheat grains settled at comfortable levels.
Maize doubts for China
Businesses everywhere affected by the global economic crisis in the past year look at Asia for signs of hope, the feed and livestock trade not withstanding. Almost as if an answer to that hope, China’s New Hope Group, the country’s largest feed producer, secured 3,000 MT of Thai corn in one of the largest purchases by a Chinese manufacturer to date, signaling robust demand from Asia’s giant economy.
The late September sale came in as dry weather cut estimates of Chinese output by 5 million MT to 155 million. This put severe doubts on maize self-sufficiency in China, which until as recently as 2003 had been a net corn exporter.
Thanks to a bountiful harvest in the 2008/09 marketing year, sizeable maize and soya bean stocks have helped balance out recent production declines in China. The extent to which more imports will be needed will hinge largely on feed demand, which on all counts appears to hold steady.
Broiler production in China is expected firm to slightly higher in 2010. The hog industry, which was hampered by the country’s H1N1 outbreak in June, will see modest growth of some 4% to 50.3 million MT on year partly due to this year’s weak output. Based on these estimates, the USDA raised Chinese soya bean import demand by 1 million MT for the 2009/10 crop with domestic demand up about 5% to 54 million MT.
For maize, China’s total demand could increase 2.7% for 2009/10 to reach 158.5 million MT. The national policy of grain rotation and strategic corn reserves of some 40-45 million have certainly helped buffer the recent decline in output.
But given a general reluctance to draw down on grain reserves and the fact that imported corn can be some US$30-40 cheaper than domestic supplies even with a 1% import duty and value added tax, China will likely import more corn further into the current marketing year, revealed a Singapore-based trader.
Given that Chinese grain stocks are still high, imports are likely to be aimed at preserving stock levels and putting a hold on prices. Estimates from the Development and Research Centre of the State Council put the country’s stock-to-consumption ratio for grain at 17-18%, helped by bumper grain harvests in previous consecutive years.
