Agri Commodity Markets Research March WASDE Prices Lower on Falling US Exports The USDA Rabobank s assessment of the USDA s March 213 WASDE: Corn Neutral Soybeans Bearish Wheat Bearish Cotton Neutral/Bullish The USDA s March WASDE was bearish for grains and oilseeds based on weak US export demand and high South American production. The cotton outlook was supportive of prices as US export expectations were again increased. US corn ending stocks were reported below average trade estimates, while soybean and wheat stocks were slightly higher than expected. However, Rabobank believes that future cuts to 212/13 corn and soybean supplies are likely as strong feed demand is revealed in the upcoming March Grain Stocks report. We believe the ability for South America s exports to meet USDA s forecasts is unlikely, with future crop downgrades and logistical issues expected to prove bullish. While the data released may prove bearish in the short term, the tight old crop supply of grains and oilseeds is likely to continue to be supportive of prices. USDA 213 March WASDE Summary: U.S. Figures USDA Mar USDA Feb 12/13 Stocks (Mn bu) Corn 632 632 989 646 56 99 Soybeans 125 125 169 122 11 13 Wheat 716 691 743 72 647 754 Cotton (Mn bls) 4.2 4.5 3.4 USDA Trade Estimates USDA USDA USDA Trade Estimates Global Figures 11/12 Avg Low High Mar Feb 11/12 Avg Low High 12/13 Production (Mn t) Corn 854.1 854.4 882.7 Brazil 72.5 72.5 73. 72.2 68. 73.5 Argentina 26.5 27. 21. 25.7 24. 27. Soybeans 268. 269.5 238.7 Brazil 83.5 83.5 66.5 83.2 81. 84. Argentina 51.5 53. 4.1 51.2 48.5 53. Wheat 655.5 653.6 697. Cotton (Mn bales) 119.9 119. 124.1 12/13 Ending Stocks (Mn t) Corn 117.5 118. 131.2 117.5 115.5 12. Soybeans 6.2 6.1 55.3 59.3 56.6 6.6 Wheat 178.2 176.7 196.5 176.5 174.5 179. Cotton (Mn bales) 81.7 81.9 69. 81.6 8.8 82.2 Source: USDA, Bloomberg, Rabobank Luke Chandler Global Head Luke.Chandler@rabobank.com Keith Flury Keith.Flury@rabobank.com Erin FitzPatrick +44 2 7664 954 Erin.FitzPatrick@rabobank.com Nick Higgins Commodity Analyst +44 2 7664 9543 Nicholas.Higgins@rabobank.com 8 March 213 Food & Agribusiness Research and Advisory
The March WASDE report was neutral for CBOT Corn prices with ending stock estimates for 212/13 unchanged at 632 million bushels. US export estimates for 212/13 were reduced 75 million bushels to 825 million bushels and imports were increased 25 million bushels to 125 million bushels. Net exports of 7 million bushels, if realised, would be the lowest since 197/71. Feed and residual use was increased 1 million bushels to 4,55 million bushels, offsetting the effects of import/export changes on ending stocks. The lack of demand rationing in the US hog and poultry sectors likely drove the increase in demand. Rabobank believes that the upcoming March Grain Stocks report is important for price direction, and we expect more bullish price action in its wake. World corn ending stocks were decreased.5 million tonnes to 117.5 million tonnes for 212/13. There were few changes to the world balance sheet with lower net exports by the US were met by small decreases to South Korean imports (.5 million tonnes). Argentinean corn production was lowered.5 million tonnes to 26.5 million tonnes, still above Rabobank estimates of 25. million tonnes. US corn exports have continued below the 5 year range, driving the USDA s 75 million bushel reduction in the March WASDE 3. Easing drought conditions have reduced worries over new crop risk and set a bearish tone in the week preceding the WASDE 2.5 2. 1.5 1..5. -.5 5 Yr. Range 5 Yr. Average Sales 11/12 Sales 12/13 Sales The March WASDE report was bearish for CBOT Wheat prices, with US ending stocks increased 25 million bushels to 716 million bushels for 212/13 reversing last month s decline. US wheat exports were reduced 25 million bushels to 1,25 million bushels for 212/13 despite recent increases in export sales. Trade expectations had been for ending stocks to be unchanged. Despite the bearish report, the price implications should be minor as the upcoming March Grain Stocks report, and the condition of the 213/14 US crop are expected to be more important. Changes to the world wheat balance sheet were bearish as ending stocks rose 1.5 million tonnes against trade estimates for a.2 million tonne decline. Feed demand estimates were increased by.5 million tonnes for both Australia and Canada although net use was unchanged as Indian total use was forecast.9 million tonnes lower. World wheat trade estimates rose as increased import demand was recognised for China (+.2 million tonnes) and the Middle East (+1.3 million tonnes). However, this was slightly offset by reduced estimates of North African imports (.7 million tonnes). World exports, still forecast 7.8 million tonnes below imports for 212/13, rose 1.4 million tonnes due to increased estimates for the EU 27 (+1. million tonne), Brazil (+.5 million tonnes) and Ukraine (+.3 million tonnes). World wheat stocks to use rose.2 percentage points to 26.5%. In our view, world wheat import demand remains strong, and will require further tightening of USDA ending stock estimates in future WASDE reports. 8 March 213 2
US wheat export estimates for 212/13 were reduced despite strong sales over the last month 1.2 US wheat exports for 212/13 are now forecast at 3 year lows, while feed demand is set to rise 13% YOY 1,4 1. 1,2.8.6.4.2 Million bushels 1, 8 6 4 2. 2/3 4/5 6/7 8/9 1/11 12/13(f) Sales Weekly Sales Required to Reach Forecast Exports Feed Use The USDA s March WASDE was bearish for CBOT Soybeans as US stocks were left unchanged and South American production was reduced by less than average trade estimates. The USDA left their forecast for US 212/13 soybean ending stocks unchanged at 125 million bushels, citing expectations for a demand shift to South America. This is despite US soybean export commitments (sales plus shipments) being at 96% of USDA s forecast with 26 weeks remaining in the marketing year. The USDA also left their forecast for US soybean crush unchanged at 1,615 million bushels, a 5% YOY decline, although crush between September to January was up 1% YOY (according to NOPA data). We believe the lack of revisions to the US soybean balance sheet reflect an unrealistic reliance on South America to meet global soybean demand for the remainder of 212/13. South American soybean supplies, in our view, continue to be overstated by the USDA. The USDA cut its production estimate for Brazil and Argentina a combined 1.5 million tonnes to 135 million tonnes above the 134.4 million tonne average trade estimate. On 7 March, Conab reduced its forecast for Brazil s soybean crop from 83.4 million tonnes to 82.1 million tonnes in line with our forecast. Similarly, the USDA s forecast for Argentina s soybean harvest at 51.5 million tonnes (down from 53 million tonnes last month) is above local agency forecasts and average trade estimates. Although we expect CBOT Soybean prices will respond bearishly to the March WASDE data release, we expect future production downgrades to South America s crop and inadequate export logistics will continue to support CBOT Soybean prices above USD 14/bushel. The USDA forecasts US soybean crush to be down 5% YOY despite YTD crush being up 1% YOY 15 March September soybean exports from Brazil would have to be a record large 36 million tonnes up 25% YOY to meet USDA s forecast 4 1 35 5 Million bushels -5 3 25-1 2-15 -2 7/8 8/9 9/1 1/11 11/12 12/13 Sep-Jan USDA forecast 15 1 2/3 4/5 6/7 8/9 1/11 12/13(f ) Source: USDA, NOPA, Rabobank Source: GTIS, USDA, Rabobank 8 March 213 3
The March WASDE report was mildly supportive for old crop cotton but was within trade estimates. Much of the 212/13 balance sheet was unchanged, with an increase in US exports and adjustments to the Chinese forecasts the main exceptions. US export pace in the past two months has been strong, prompting the 212/13 export forecast to be increased from 12.5 million bales to 12.75 million bales. For China, production was increased 1 million bales to 35 million bales, imports increased 1 million bales to 15 million and domestic use increased 5, bales to 36 million bales. China has imported 9.8 million bales of cotton in the first six months of the season, suggesting the USDA assumes a seasonal slowdown in exports within the final six months of the season to average 871, bales per month, down from 1.6 million in the first six months. The 212/13 Chinese ending stocks forecast was increased 1.5 million bales, and the forecast share of global ending stocks in China was increased to 54% from 52%. With more of the global supply in China NY prices have increased 15% YTD. In our view, the old crop values have passed fair value and reduced Chinese imports in 2H 213 will result in a correction lower for old crop prices. US exports to China have surpassed last season s pace, prompting the USDA to increase import forecasts 7% for 212/13 7 US weekly exports were at a multiyear high for the last week of February and the USDA increased the 212/13 forecast 2% 55 Million Bales 6 5 4 3 2 1 Thousand Running Bales 5 45 4 35 3 25 2 15 1 28/9 211/12 29/1 21/11 212/13 5 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 212/13 211/12 5 year average Needed To Meet USDA Forecast 8 March 213 4
Rabobank Food & Agribusiness Research and Advisory Agri Commodity Markets Research (ACMR): Luke Chandler Global Head luke.chandler@rabobank.com Keith Flury keith.flury@rabobank.com Erin FitzPatrick +44 2 7664 954 erin.fitzpatrick@rabobank.com Nick Higgins Commodity Analyst +44 2 7664 9543 nicholas.higgins@rabobank.com www.rabotransact.com Global Financial Markets Corporate Risk & Treasury Management Contacts: GLOBAL HEAD Martijn Sorber +31 3 21 69447 martijn.sorber@rabobank.com ASIA Brandon Ma +852 213 2688 brandon.ma@rabobank.com AUSTRALIA Terry Allom +61 2 8115 313 terry.allom@rabobank.com NETHERLANDS Arjan Veerhoek +31 3 216 94 arjan.veerhoek@rabobank.com EUROPE Eliana de Rossi +44 2 7664 9649 eliana.de.rossi@rabobank.com NORTH AMERICA David Teakle +1 212 88 6877 david.teakle@rabobank.com SOUTH AMERICA Mark Yale +1 212 88 6991 mark.yale@rabobank.com This document is issued by Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. incorporated in the Netherlands, trading as Rabobank International ( RI ). RI is authorised by De Nederlandsche Bank and by the Financial Services Authority and regulated by the Financial Services Authority for the conduct of UK business. This document is directed exclusively to Eligible Counterparties and Professional Clients. It is not directed at Retail Clients. This document does NOT purport to be an impartial assessment of the value or prospects of its subject matter and it must not be relied upon by any recipient as an impartial assessment of the value or prospects of its subject matter. No reliance may be placed by a recipient on any representations or statements outside this document (oral or written) by any person which state or imply (or may be reasonably viewed as stating or implying) any such impartiality. The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. This document is for information purposes only and is not, and should not be construed as, an offer or a commitment by RI or any of its affiliates to enter into a transaction. The information contained in this document is not to be relied upon by the recipient as authoritative or taken in substitution for the exercise of judgement by any recipient. All opinions expressed in this document are subject to change without notice. Neither RI, nor other legal entities in the group to which it belongs accept any liability whatsoever for any direct or consequential loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. Insofar as permitted by the Rules of the Financial Services Authority, RI or other legal entities in the group to which it belongs, their directors, officers and/or employees may have had or have a long or short position and may have traded or acted as principal in the securities described within this document, (or related investments). Further it may have or have had a relationship with or may provide or have provided corporate finance or other services to companies whose securities (or related investments) are described in this document. The distribution of this document in other jurisdictions may be restricted by law and recipients of this document should inform themselves about, and observe any such restrictions. This document may not be reproduced, distributed or published, in whole or in part, for any purpose, except with the prior written consent of RI. By accepting this document you agree to be bound by the foregoing restrictions. Rabobank International London Branch, Thames Court, One Queenhithe, London EC4V 3RL +44 () 2 789 3 8 March 213 5