Grains Outlook for January 28, 2011

Grains Outlook- An Excerpt from CRB'S Futures Market Service

CORN

Corn prices are consolidating just below their recent 2-1/2 year high.  Bullish factors include (1) the EPA's decision to allow a 15% ethanol mix for vehicles with model years of 2001-07, which was mildly bullish for long-term ethanol and corn demand, (2) USDA's action on Jan 12 to cut its 2010 US corn crop estimate and cut its 2010-11 US and global carry-over estimates, with global inventories falling to a 4-year low, and (3) drought concerns in South America that threaten Argentina's and Brazil's corn crops, the second and third-biggest in the world.  Bearish factors include (1) the statement from the China National Grain & Oils Information Center that China's livestock producers have halted purchases of US corn because of surging prices, and (2) the prediction from National Australia Bank Ltd. that "roughly half" of Australia's 25 MMT wheat crop will be sold as feed due to downgraded quality this season, which will reduce global demand for US corn as animal feed.

Weekly Corn  Exports (week ended Jan 20): 770.1 MT; 2009/10 (Sep-Aug) cumulative exports are up +1.0% y/y.

Fundamental Outlook-Medium-term Bullish-The medium-term trend remains bullish with the USDA's recent cut its US and global production and carry-over estimates and the dry South American weather.  Record ethanol production is also a bullish factor although inventories are rising and production may need to be cut.  The stocks/use ratios are extremely tight with the US stocks/use ratio at 5.5% and the world stocks/use ratio at 15.2%.  The main downside risks are technical long liquidation pressure and any rain in South American growing areas.

SOYBEANS

Soybean prices fell back from their recent 2-1/2 year high.  Bullish factors include (1) strong Chinese demand for soybeans after the USDA reported on Jan 25 that China bought 2.74 MMT of US soybeans, the biggest 1-day total since records began in 1977 and China's customs office said China's soybean  imports surged +29% y/y in 2010 to a record 54.8 MMT, (2) the USDA's Jan 12 cut in its 2010-11 US soybean production estimate and cut its global soybean production estimate after recent drought conditions in South America prompted a reduction in its Argentine soybean production estimate, (3) drought concerns that threaten the soybean crops in Argentina and Brazil, the biggest soybean producers after the US, and (4) USDA's Dec 10 hike in its US soybean export forecast to a record 1.59 billion bushels.  Bearish factors include (1) the action by Chinese soybean crushers to cancel several cargoes of soybean imports because of losses as the price of imported soybeans has risen more than local price increases, which may lead to reduced Chinese demand, and (2) weakened US demand for soybeans after the Dec NOPA soybean crush fell -2.2% m/m to 145.54 million bushels on decreased demand for cooking oil and animal feed.

Weekly US soybean exports (week ended Jan 20): 1,277.5 MT; 2009/10 (Sep-Aug) cumulative exports are up +2% y/y.

Fundamental Outlook-Medium-term Bullish -The medium-term trend remains bullish on the USDA's cut its US and global production  and carry-over estimates, concerns about South American weather, and continued strong Chinese demand.  The US stocks/use ratio is very tight at 4.2%, but the world stocks/use ratio is near average at 22.8%.

WHEAT

Wheat prices soared to a 2-1/3 year high as they broke out above their 5-month consolidation range.  Bullish factors include (1) increased foreign demand for US wheat supplies after floods in Australia and Canada reduced their wheat quality while drought in Russia and Eastern Europe slashed their wheat production, (2) USDA's Jan 12 cut in its 2010-11 US carryover estimate, (3) speculation that adverse weather in Australia, China and the US will curb global wheat production this year, and (4) speculation that more US wheat may be used for animal feed as record US ethanol production absorbs corn supplies.  Bearish factors include (1) the USDA's unexpected Jan 12 hike in its 2010-11 global wheat carry-over estimate to 177.99 MMT from last month's estimate of 176.72 MMT, and (2) the increase in US winter-wheat plantings this year to 40.99 mln acres, up +9.8% y/y.

Weekly US wheat exports (week ended Jan 20): 670 MT; cumulative 2010/11 (June-May) all-wheat exports: +43% y/y.

Fundamental Outlook-Medium-term Bullish –Wheat  prices broke out above their 5-month consolidation, posted a new 2-1/3 year high, and turned the trend to bullish.  Foreign buyers are flocking to US wheat due to very low European and Russian supplies and quality issues for Canadian and Australian supplies because of flooding.  Increased US winter-wheat plantings are a near-term negative, but adverse weather in the US and Australia and a lack of Russian exports is supportive.  The US wheat supply situation remains above-average with the US stocks-to-use ratio at 35.2%, but the global stocks-to-use ratio of 26.5% is tighter and is near the decade average.

(Source: http://www.insidefutures.com/article/212861/Grains%20Outlook%20for%20January%2028,%202011.html)