Corn, soy outlook 'bullish' despite Argentine rain

Rains in Argentina have improved prospects for the country's important corn and soybean crops – but not by enough to unseat their rally on futures markets, Rabobank has said.

The bank acknowledged the rains which look set to continue rebuilding moisture levels on Argentina farms where a dry start to the season prompted a series of crop downgrades.

Weather service Meteorlogix forecast showers and thunderstorms would deliver some 0.5-1.5 inches on Monday alone.

"Recent rains have lowered the risk of extreme downside to our soybean forecast," Rabobank analysts.

'Irreversible damage'

Nonetheless, thanks to the "hot and dry" weather earlier on, they cut their forecast Argentina's soybean  output by 4m tonnes to 48m tonnes, and that for corn , which had in particular already suffered "irreversible damage", by 2.5m tonnes to 20m tonnes.

Both figures are below the latest forecasts from the US Department of Agriculture, whose estimates set global benchmarks.

Indeed, further downgrades could be in the offing, the bank warned, noting that even in 2008-09, when Argentine soybean production slumped to 32m tonnes, the country received rains in late January and early February.

"Adequate rainfall in coming weeks would prevent the need for us to revise our forecast lower, but it would not be enough to provide above-average yields," Rabobank said in a report.

Supply squeeze

At a global level, the woes facing farmers in Argentina, the world's second-ranked corn exporter and third-biggest shipper of soybeans, looks set to further diminish prospects for supplies of the crops.

Without further demand rationing – which looks unlikely given strong livestock prices and high production of corn ethanol in the US – world corn inventories will fall below 120,000 tonnes this year.

Global stocks of the grain as compared with use - a key measure of the availability of supplies and therefore of their price potential - will fall to 12.8%, "a level not seen in more than 20 years, taking multiple seasons to recover".

For soybeans, the likely fall in world inventories appeared less drastic, with high prices already showing signs of curbing demand. Nonetheless, at 16.4%, the forecast soybean stocks-to-use ratio would represent a historically low level.

'Bullish'

The bank added that, given its assessment that corn stocks were particularly tight, hopes for prices of the grain looked particularly firm, and were likely to outperform soybean futures.

"We expect the recent trend in Chicago soybean and corn futures prices to continue as corn has a strong need to 'buy' US acreage" in the spring sowing season.

However, both corn and soybean futures held "further upside… despite the rainfall in Argentina as the underlying fundamentals continue to remain extremely tight".

The bank, terming its stance "bullish", said it saw "any short-term pullback as a buying opportunity".

(Source: http://www.agrimoney.com/news/corn-soy-outlook-bullish-despite-argentine-rain--2765.html)