USDA’s downgrading of global crop yield estimates is bullish for producer prices

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The United States Department of Agriculture’s (USDA) downgrading of estimates for world stocks of wheat, corn and soybeans in its latest WASDE Report released on 11 July 2012 provides a bullish background for producer prices, according to Offre & Demande Agricole UK Ltd.

Leo von Kameke, a market analyst for Europe’s leading provider of independent grain market intelligence services to the farming and agri-food industry, states:

“In June, the USDA estimated world stocks of wheat, corn and soybeans at 185.8 million tonnes (MT), 155.7MT and 58.5MT respectively. Its latest report downgrades these to 182.44MT, 134.09MT and 55.66MT, which are below the market’s expectations of 182.5MT, 145.0MT and 57.0MT. Markets reacted as expected when the data was released, with prices rising across the board. ODA’s analysis indicates in our last monthly report that world wheat stocks are 182.2MT, in line with the USDA’s latest estimate, but our research puts world corn stocks at 152.7MT and soybeans at 56.9MT.

“The USDA’s estimate of world wheat stocks came as no surprise. Global production decreased by 6.7MT, mainly as result of production shortfalls of 4MT shortfall in Russia and 2MT in both Kazakhstan and China. In part this will be offset by the slight rise of 2.1MT in EU-27 production, but the net impact is that global ending stocks of wheat are estimated to fall by 3.3MT to 182.4MT, very much in line with the market’s expectation of 182.5MT.

“The stand-out figure in the USDA latest Report is the substantial reduction in its estimates of the average US corn yield. In June 2012 the USDA estimated it at 166 bushels per acre (bu/ac), but a sharp deterioration in growing conditions since then has seen that figure revised sharply downward to 146bu/ac, much lower than the market’s expectation of 154bu/ac. This has led to the estimate for US production being reduced by 46.2MT, with US ending stocks down 17.7MT to 30.1MT, compared with market expectation of 32.5MT.

“At 22.9MT, global corn consumption is also lower, mostly due to an expected fall in US meat production during the third-quarter due to a lack of feed supplies. This should result in global ending stocks being down 21.7MT at 134.1MT, compared with the market’s expectation of 145MT. This is a much greater decline than was expected and should prove very bullish for producer prices, as will the decline in the US ‘stock-to-use’ ratio, which is now just 10.6% compared with a global figure of 14.9%.

“The USDA’s downgraded estimate for US soybean yields, from an average of 43.9bu/ac in its June 2012 Report to just 40.5bu/ac in July, is much lower than the market’s expectation of 42.3bu/ac, resulting in a 3.9MT reduction in global production to 267.2MT. Very low stocks of soybeans in the US, just 3.54MT, give a supply-to-use ratio of just 7.5%, compared to an already low world supply-to-use ratio of 21.1%.

This places significant additional pressure on the already tight feed complex between corn, wheat and barley, which now stands lose a further 20MT. This resulted in significant increases in prices following the release of the USDA Report and highlights how fundamental Supply and Demand expectations are driving the markets.”

Offre & Demande Agricole UK Ltd is based at Unit 3, Three Hills Farm, Bartlow, Cambridge, CB21 4EN (T: 01223 894791).  It also operates from Unit 3, Home Farm, Welford, Newbury, RG20 8HR (T: 01488 608191). Further information is available at www.oda-agri.com

NOTES FOR EDITORS

1.

Media Contact: Julian Cooksley, Kendalls Communications:

T: 01394 610022      E: julian.cooksley@kendallscom.co.uk

2.

Offre & Demande Agricole was established in France in 1997 and is now the European market leader in the provision of timely, accurate and independent grain market intelligence services to the farming and agri-food industry. A private, independent consulting firm, it aims to help both buyers and sellers of agricultural commodities manage market volatility and price risks.

Through the use of advanced in-house information systems and models based on international sources together with real-time crop data from its own farmer network, analysts and research departments which provide independent, reliable and unbiased information and strategies, the company’s team of consultants advise clients how to market their grain in a clear, straightforward way.

The company has a strong track record of consistently improving clients’ profitability through three strategic activities:

Detailed analysis and research of agricultural and associated marketsThe provision of training courses which give attendees the knowledge and skills to take control of their own marketingAdvice and bespoke consultancy/information services for the farming industry and individual customers

In 2009 Offre & Demande Agricole, opened its first UK office at Unit 3, Three Hills Farm, Bartlow, Cambridge, CB21 4EN (T: 01223 894791).  A second office was opened recently at Unit 3, Home Farm, Welford, Newbury, RG20 8HR (T: 01488 608191).

Further information is available at www.oda-agri.com

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