Agri Commodities Market Research
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
It’s been an extremely mixed week for agricultural markets with no clear theme across the complex. Grain prices have tracked lower as Russia announced they would not extend their export ban and from pressure in the front end of the curve due to index rolling, however we expect downside movement to be limited. Weather and production uncertainties continue to keep the grains complex on edge while early season setbacks in Brazil have seen sugar the star performer over the past week. The USDA will release its June WASDE report on Thursday this week which will likely provide a little more direction for the grains markets. We include some pre‐WASDE thoughts below and will be releasing a comprehensive analysis of the WASDE following its release.
Commodity Price US¢/bu CBOT Corn Ma ti f Whea t (€/Mt) Grains CBOT Whea t Mi nni Whea t KC Whea t CBOT Soybea ns CBOT Bea n Oi l (l b.) Oilseeds CBOT Bea n Mea l (USD/T) MDEX Pa l m Oi l (MYR/Mt) Ma ti f Ra pes eed (€/Mt) Cotton No. 2 Suga r No.11 Suga r Whi te Softs Coffee Ara bi ca Coffee Robus ta Cocoa (ICE) WTI Crude Oi l (USD/bbl ) NYMEX Brent Crude Oi l (USD/bbl ) Energy Hea ti ng Oi l US¢/ga l US Dol l a r Index
Rabobank 3-month view
7 Jun 31 May % WoW % YTD 736.5 222.8 733.8 984.8 874.5 1394.0 57.9 368.0 3371.0 460.8 148.6 24.4 694.2 263.0 2433.0 2891.0 99.1 116.8 307.7 73.5
747.5 236.0 782.3 1025.0 908.0 1376.0 58.5 355.3 3475.0 477.8 158.7 23.2 672.0 264.6 2602.0 2999.0 102.7 116.7 305.6 74.6
‐1.47% ‐5.61% ‐6.20% ‐3.93% ‐3.69% 1.31% ‐0.96% 3.57% ‐2.99% ‐3.56% ‐6.33% 5.05% 3.30% ‐0.60% ‐6.50% ‐3.60% ‐3.52% 0.04% 0.68% ‐1.50%
17.33% ‐11.78% ‐7.62% 11.71% 2.53% ‐0.25% 0.07% ‐0.70% ‐12.06% ‐7.34% 2.06% ‐24.50% ‐10.06% 8.84% 16.38% ‐4.61% 7.56% 22.56% 19.87% ‐6.73%
WHEAT
Rabobank 3-month view
CORN
Rabobank 3-month view
SOYBEANS
Rabobank 3-month view
PALM OIL
Rabobank 3-month view
SUGAR
Rabobank 3-month view
COTTON
Rabobank 3-month view
COCOA Rabobank 3-month view
COFFEE
Source: Bloomberg, Rabobank
While the June WASDE rarely provides too many fireworks the extreme tightness in US and world grain markets this season will mean any amendments made by the USDA on Thursday will be critically important. We expect the USDA will make significant downgrades to EU and US wheat production and expect a tightening in US old crop and new crop corn stocks.
Rabobank estimates reflects a larger change needed by USDA to 2010/11 corn ending stocks than trade average
Lower US corn and wheat ending stocks versus trade average are also expected in 2011/12 50 2011/12 ending stocks estimates versus May WASDE (million bushels)
2010/11 ending stocks estimate versus May WASDE (million bushels)
10 0 -10 -20 -30 -40 -50
0 -50 -100 -150 -200 -250 -300
-60 Trade Corn
Trade
Rabo Soybeans
Source: USDA, Bloomberg, Rabobank
Corn
Wheat
Rabo Soybeans
Wheat
Source: USDA, Bloomberg, Rabobank
Luke Chandler Global Head
Keith Flury Senior Commodity Analyst
Erin FitzPatrick Commodity Analyst
+44 20 7664 9514 [email protected]
+44 20 7664 9676 [email protected]
+44 20 7664 9540 [email protected]
Page 1 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
Wheat Wheat price direction looks set to continue tracking lower this week, although the USDA WASDE report on Thursday will help shape near‐term direction. Bearish sentiment continues to weigh on global wheat markets this week with beneficial European rains over the weekend compounding the Russian government’s announcement on 28 May not to extend its export ban beyond end June. European wheat futures have been most affected by the Russian announcement shedding over 11%, basis November ’11 contract. We expect the USDA to lower its winter and (implied) spring wheat production, but look for any bullish surprises for the grains complex to be triggered from updated corn estimates. Pre‐report surveys suggest the market is already factoring in a 50 million to 60 million bushel reduction in the USDA’s 2011/12 US all wheat estimate, which is broadly in line with our current estimates given higher HRW abandonment and lower HRS plantings since last month’s report. Spring wheat seeding in the US continues to suffer delays with 79% now planted versus a 5‐year average of 98% planted at this stage. With prevent plant dates in the Dakotas now past, there will be some areas lost to both spring and durum wheat plantings this season. Canada is seeing similar delays in the southern parts of the prairies, with final planting expectations now being lowered. Despite an easing in drought conditions in the southern parts of the US, winter wheat crop conditions continue to deteriorate with 44% of the crop now rated poor/very poor. Early season HRW harvest results have exceeded expectations in terms of yield and protein levels, resulting in significant volatility in MGE calendar spreads over the past week. Extreme volatility in Minneapolis wheat calendar spreads
Source: Bloomberg, Rabobank
Corn US corn prices remain firm this week despite pressure on the nearby contract as index’s roll out of the front contract. Meanwhile, beneficial rainfall in northern Europe has improved EU maize production expectations and resulted in a sharp fall (over 12%) in new crop November futures. Corn prices have climbed above wheat in the nearby CBOT contract this week for one of the few times in history this spread has inverted.
Page 2 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
CBOT Corn trading at a premium to CBOT wheat is very rare
Source: Bloomberg, Rabobank
We look to Thursday’s WASDE report to provide direction through until the 30 June acreage and stocks report releases. Our view remains bullish for old crop prices with a risk that old crop supply scarcity lifts nearby (July contract) prices through USD8.00/bu for the first time in history. This may see support for bull spread July/Dec positions once the index rolls are complete and focus returns to old crop balance sheet tightness. Cash prices in the US Eastern corn belt remain elevated and given an apparent lack of grower selling – despite record high prices – processing margins for crushers and ethanol producers are likely to remain under pressure. New crop plantings were 94% complete in the most recent data released (5 June) by NASS, with serious concerns remaining in the ECB with Ohio still only 58% planted. Early season crop conditions which show the crop rated as 67% good/excellent, is very close to the 10 year average. With final corn plantings now almost certainly going to fall 1‐2 million acres below the USDA’s initial estimate of 92.2 million planted acres, an above trend yield will be needed to help inventories recover. Strong export demand for US corn this week with Mexico securing 823 thousand tonnes over the 2011/12 and 2012/13 seasons. Also suggestions that China has secured another panama of US corn. Interesting data point for global corn demand, one of the strongest sales on record despite such elevated prices along the curve.
Oilseeds Soybeans Nearby CBOT soybeans are likely to remain contained this week after closing above USD 14/bu last week for the first time since March and amidst increased Brazilian supplies. However, we expect any price correction to be short‐lived as Chinese demand is poised to increase and US production risks remain. The planting pace of most US spring crops remains behind schedule which, in our view, will result in the most bullish scenario for CBOT corn prices. We expect this will spill over to CBOT soybean prices as the soybeans/corn ratio remains at a 4‐year low of under 2. Page 3 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
CBOT soybeans would likely benefit from a bullish WASDE report for corn as soybeans/corn ratio of remains at a 4‐year low
Source: Bloomberg, Rabobank
Brazil’s exports are positioned to show a later‐than‐normal seasonal peak due to ongoing logistical issues as a result of the delayed harvest. Conab again raised their production forecast from 73.6 million tonnes last month to 75 million tonnes in their June report. However, we expect this to be met by increased demand from China where crush margins are poised to improve. China’s retail vegetable oil price caps were reportedly lifted, which will increase their soybean import demand in coming months. China’s domestic crush margins have been negative since March as crushers have been unable to pass higher prices along to consumers due to price caps. This coincided with China’s YOY declines in soybean imports from February to April. However, without price caps we expect China’s domestic crush margins to improve and prompt increased soybean imports for the remainder of the marketing year.
Brazil’s delayed soybean harvest will cause a later‐than‐ normal peak in exports
China’s crush margins are poised to increase from their negative levels thereby boosting soybean import demand
6
Million tonnes
5 4 3 2 1 0 Oct
Nov
Dec
Jan
Feb
5-year range
Source: Bloomberg, Rabobank
Mar
Apr 09/10
May
Jun
Jul
Aug
Sep
10/11
Source: Bloomberg, Rabobank
Palm Oil Palm oil prices will likely see further downward pressure in the short term due to a broader weakness in the oils complex and a lack of new fundamental news. We expect this to be short‐lived as China and India increase imports in coming weeks as global vegetable oil availability declines.
Page 4 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
Malaysia’s April exports of palm oil reached a record high 1.35 million tonnes while China’s imports rose to a 4‐ month high of 453,089 tonnes in May. We expect production to continue to increase in Malaysia and Indonesia which will be met with increased demand. A YOY decline in China’s oilseed planted area and Europe’s growing biodiesel industry will continue to increase their import demand — giving palm oil prices limited downside.
Malaysia’s April palm oil production was the highest on record at 1.53 million tonnes
2.0
1.7
1.9
1.6
1.8
1.5
1.7
1.4
Million tonnes
Million tons
Growing demand pushed Malaysia’s May exports of palm oil to a record high 1.35 million tonnes
1.6 1.5 1.4 1.3
1.3 1.2 1.1 1.0
1.2
0.9
1.1
0.8
1.0 Oct
Nov
Dec
Jan
2008
Feb
Mar
2009
Apr 2010
May
Jun
Jul
Aug
0.7
Sep
Oct
2011
Nov
Dec
Jan
5yr range
Source: Bloomberg, Rabobank
Feb
Mar
Apr
10/11
May
Jun
Jul
Aug
Sep
5yr avg
Source: Bloomberg, Rabobank,
Rapeseed Rapeseed prices will see short‐term weakness as the market views the recent EU rains as bearish. However, this will be short‐lived as the rains have provided more benefit to spring crops planted later, and are likely too little too late to repair the damage done. Furthermore, production risks in Ukraine and Canada continue to escalate while our forecast for China’s crop at a 4‐year low will continue to support rapeseed prices. Most of Ukraine’s soil moisture content is below 50% which is threatening rapeseed yields
Current soil moisture content is below the level of last year at the same time
Source: USDA‐FAS, Rabobank
Source: USDA‐FAS, Rabobank,
Matif rapeseed will likely continue trading at an elevated premium to CBOT soybeans as we forecast lower production than the USDA for Ukraine, China, the EU and Canada. Due to adverse weather and lower planted area we expect global rapeseed production to decline by more than 1 million tonnes YOY as compared to USDA’s forecast for an increase of
Page 5 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
over 2 million tonnes. The situation is particularly tight in the EU where we expect record‐high imports to be necessary to satiate demand. Lower supplies will require further demand rationing — particularly in the EU biofuel sector. This will continue to be supportive of rapeseed prices particularly in an environment of rising energy prices. We expect biodiesel’s premium to rapeseed oil to continue to weaken and slow biodiesel demand as was the case in Q1 2011. Rapeseed oil prices must continue trading at an elevated level in order to reduce biodiesel’s premium and slow usage
Source: Bloomberg, Rabobank
Softs Sugar Sugar prices have been well supported in the past month by strong spot white demand, lower Brazilian output, concerns about Thai port delays and an early monsoon lowering 2010/11 output potential from India. However, upside movement should be limited by the expectations of better availability of supply in a number of major producers in the coming season. Sugar prices are higher in the past month with white values outpacing raws
Source: Bloomberg, Rabobank
The Indian monsoon arrived early shutting mill operations but improving prospects for the new season. It looks likely that 1 million tonnes of cane will remain uncrushed in 2010/11, but plantings for 2011/12 have already reached 5.06 million hectares as of 3 June, up from 4.86 million at the same point a year ago.
Page 6 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
Port delays in Thailand have supported international prices, but a sunken barge that was a major problem has now been cleared suggesting the situation will get better. There is still a major supply of sugar in the nation waiting to be exported, and with the crush over and white premium high, exports of white are expected to grow. The white premium has surged on strong white sugar demand, likely overcorrecting after sustained low levels. Thai white supply coming on line, a ramp‐up of Middle Eastern refiners, and better prospects for EU sugar, which is all exported as whites, will likely pressure the premium. The size and yields of the Brazilian harvest remains unclear and a major bullish supporting factor in the market, with expectations for the season being reduced by trade. While supply might not reach previous forecasts because of low yields due to negative weather, the season is sufficiently long to allow a bounce‐back when processing of newer cane begins. Prospects for beet output in the CIS are positive, with a producer group in Ukraine reporting a production increase of 40% this season. and the Russian crop supported by generally favourable weather. The larger supply in the CIS is expected to mean lower imports in the new season. Reports of sugar shortages in Germany confirms the tight supply situation in the EU, but good rainfall in dry beet‐ growing regions suggests next season’s crop will be able to meet expectations, and with better supply, domestic prices should ease.
Cotton Cotton prices on the NY futures exchange fell modestly in the past week due to macroeconomic concerns and improved prospects for new season crops. New crop prices are likely to continue to fall if weather is supportive, but given the low inventories and the dry conditions for much of the US crop, downside bias is expected to be limited as the risk premium will remain. Cotton futures prices on ICE and the ZCE exchange have fallen in the past week
Source: Bloomberg, Rabobank
Funds, looking for bargains, came back to the cotton #2 market increasing the net long position by 30% in the three weeks to 31 March, helping prices rise. But speculator‐buying is likely to have waned due to the rainfall in India and China, and fears about the global economy.
Page 7 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
The speculator net long position in New York cotton rose in the three weeks to 31 March 100
250
80
US¢ / lb
Thousand Contracts
200 60 150
40 20
100
0 50
-20 -40
0
Speculators (Managed Money & Other Reportables)
Source: Bloomberg, Rabobank
ICE Cotton (RHS)
Indian plantings are well ahead of the previous season at 1.48 million hectares, up from 1.15 million, and as the monsoon has started early, crop potential looks strong for the new season. Dry conditions remain in the cotton area of China but rainfall in the past week was supportive for growth. Forecasts for the coming week suggest plentiful precipitation in eastern cotton regions, a bearish factor for prices.
Coffee Coffee prices have been bouncing sideways since mid‐May as speculators have liquidated long positions while end users were buyers . As weather remains benign in Brazil and macro uncertainty encourages funds to take risk off the table, prices look vulnerable to further downside if roaster‐buying slows. The ‘C’ contract in NY has traded sideways while the London Robusta market has fallen in the past week
Source: Bloomberg, Rabobank
Frost in Brazil has not occurred, and is not expected to materialise, which is prompting some weather speculators to cover positions. With supportive weather, the Brazilian crop is expected to be the largest off‐season harvest ever, at a forecast 46 million bags. Brazilian growers are holding off on new crop sales; with farmer coffers full due to high prices in the past season, there is little reason to sell early. The big question is whether this will continue in the face of falling values. With harvest conditions supportive and speculators leaving the market, farmer selling could be expected to push prices lower The Managed Money net long position in the ‘C’ contract has dropped 56% in the month of May to levels not seen since June 2010 when prices were near USc 140/lb. Page 8 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
The speculator net long position in the “C” contract has fallen 56% in May as funds liquidated positions 60
Thousand Contracts
50
40
30
20
10
0
Speculators (Managed Money & Other Reportables)
Source: Bloomberg, Rabobank
Cocoa Cocoa prices were lower in the past week as the burden of short‐term bearish fundamentals continued to weigh on values. Barring any negative weather impacts, prices in the short term will likely continue to ease, but the longer term new season fundamental outlook is bullish due to the forecast supply deficit. Cocoa prices continue to fall due to normalisation in Ivory Coast
Source: Bloomberg, Rabobank
While strong industry‐covering has been friendly for prices, speculators are liquidating long positions, which is weighing on prices. The Managed Money net long position fell by 71% in the three weeks to 31 March, while the end users increased the long position by 13% in the past four weeks.
Page 9 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
The speculator net long has fallen significantly since the end of the export ban in March 35 30
Thousand Contracts
25 20 15 10 5 0 -5 -10 -15
Speculators (Managed Money & Other Reportables)
Source: CFTC, Bloomberg, Rabobank
Average weather conditions in West Africa indicate new season crops will be closer to trend yields, suggesting next season’s crop will not be sufficient to cover demand. This is likely to temper any price correction in the short term.
Page 10 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
Agri Commodity Markets Research Luke Chandler Global Head +44 20 7664 9514 [email protected] Keith Flury Senior Commodity Analyst +44 20 7664 9676 [email protected] Erin FitzPatrick Commodity Analyst +44 20 7664 9540 [email protected] Rabobank Food & Agribusiness Research and Advisory www.rabotransact.com
08 June 2011
Global Financial Markets Corporate sales contacts: ASIA―Brandon Ma +852 2103 2688 [email protected] AUSTRALIA―Terry Allom +61 2 8115 3103 [email protected] EUROPE―Martijn Sorber +31 30 216 9447 [email protected] BRAZIL―Sergio Nakashima +55 11 5503 7150 [email protected] US―Bruce King +1 212 808 6908 [email protected] US―Neil Williamson +1 212 808 6966 [email protected] MEXICO―Marco Garcia +52 55 52610029 [email protected] CHILE―Enzo Folch +56 2 8730332 [email protected]
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Page 11 of 11
08 June 2011
It’s been an extremely mixed week for agricultural markets with no clear theme across the complex. Grain prices have tracked lower as Russia announced they would not extend their export ban and from pressure in the front end of the curve due to index rolling, however we expect downside movement to be limited. Weather and production uncertainties continue to keep the grains complex on edge while early season setbacks in Brazil have seen sugar the star performer over the past week. The USDA will release its June WASDE report on Thursday this week which will likely provide a little more direction for the grains markets. We include some pre‐WASDE thoughts below and will be releasing a comprehensive analysis of the WASDE following its release.
Commodity Price US¢/bu CBOT Corn Ma ti f Whea t (€/Mt) Grains CBOT Whea t Mi nni Whea t KC Whea t CBOT Soybea ns CBOT Bea n Oi l (l b.) Oilseeds CBOT Bea n Mea l (USD/T) MDEX Pa l m Oi l (MYR/Mt) Ma ti f Ra pes eed (€/Mt) Cotton No. 2 Suga r No.11 Suga r Whi te Softs Coffee Ara bi ca Coffee Robus ta Cocoa (ICE) WTI Crude Oi l (USD/bbl ) NYMEX Brent Crude Oi l (USD/bbl ) Energy Hea ti ng Oi l US¢/ga l US Dol l a r Index
Rabobank 3-month view
7 Jun 31 May % WoW % YTD 736.5 222.8 733.8 984.8 874.5 1394.0 57.9 368.0 3371.0 460.8 148.6 24.4 694.2 263.0 2433.0 2891.0 99.1 116.8 307.7 73.5
747.5 236.0 782.3 1025.0 908.0 1376.0 58.5 355.3 3475.0 477.8 158.7 23.2 672.0 264.6 2602.0 2999.0 102.7 116.7 305.6 74.6
‐1.47% ‐5.61% ‐6.20% ‐3.93% ‐3.69% 1.31% ‐0.96% 3.57% ‐2.99% ‐3.56% ‐6.33% 5.05% 3.30% ‐0.60% ‐6.50% ‐3.60% ‐3.52% 0.04% 0.68% ‐1.50%
17.33% ‐11.78% ‐7.62% 11.71% 2.53% ‐0.25% 0.07% ‐0.70% ‐12.06% ‐7.34% 2.06% ‐24.50% ‐10.06% 8.84% 16.38% ‐4.61% 7.56% 22.56% 19.87% ‐6.73%
WHEAT
Rabobank 3-month view
CORN
Rabobank 3-month view
SOYBEANS
Rabobank 3-month view
PALM OIL
Rabobank 3-month view
SUGAR
Rabobank 3-month view
COTTON
Rabobank 3-month view
COCOA Rabobank 3-month view
COFFEE
Source: Bloomberg, Rabobank
While the June WASDE rarely provides too many fireworks the extreme tightness in US and world grain markets this season will mean any amendments made by the USDA on Thursday will be critically important. We expect the USDA will make significant downgrades to EU and US wheat production and expect a tightening in US old crop and new crop corn stocks.
Rabobank estimates reflects a larger change needed by USDA to 2010/11 corn ending stocks than trade average
Lower US corn and wheat ending stocks versus trade average are also expected in 2011/12 50 2011/12 ending stocks estimates versus May WASDE (million bushels)
2010/11 ending stocks estimate versus May WASDE (million bushels)
10 0 -10 -20 -30 -40 -50
0 -50 -100 -150 -200 -250 -300
-60 Trade Corn
Trade
Rabo Soybeans
Source: USDA, Bloomberg, Rabobank
Corn
Wheat
Rabo Soybeans
Wheat
Source: USDA, Bloomberg, Rabobank
Luke Chandler Global Head
Keith Flury Senior Commodity Analyst
Erin FitzPatrick Commodity Analyst
+44 20 7664 9514 [email protected]
+44 20 7664 9676 [email protected]
+44 20 7664 9540 [email protected]
Page 1 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
Wheat Wheat price direction looks set to continue tracking lower this week, although the USDA WASDE report on Thursday will help shape near‐term direction. Bearish sentiment continues to weigh on global wheat markets this week with beneficial European rains over the weekend compounding the Russian government’s announcement on 28 May not to extend its export ban beyond end June. European wheat futures have been most affected by the Russian announcement shedding over 11%, basis November ’11 contract. We expect the USDA to lower its winter and (implied) spring wheat production, but look for any bullish surprises for the grains complex to be triggered from updated corn estimates. Pre‐report surveys suggest the market is already factoring in a 50 million to 60 million bushel reduction in the USDA’s 2011/12 US all wheat estimate, which is broadly in line with our current estimates given higher HRW abandonment and lower HRS plantings since last month’s report. Spring wheat seeding in the US continues to suffer delays with 79% now planted versus a 5‐year average of 98% planted at this stage. With prevent plant dates in the Dakotas now past, there will be some areas lost to both spring and durum wheat plantings this season. Canada is seeing similar delays in the southern parts of the prairies, with final planting expectations now being lowered. Despite an easing in drought conditions in the southern parts of the US, winter wheat crop conditions continue to deteriorate with 44% of the crop now rated poor/very poor. Early season HRW harvest results have exceeded expectations in terms of yield and protein levels, resulting in significant volatility in MGE calendar spreads over the past week. Extreme volatility in Minneapolis wheat calendar spreads
Source: Bloomberg, Rabobank
Corn US corn prices remain firm this week despite pressure on the nearby contract as index’s roll out of the front contract. Meanwhile, beneficial rainfall in northern Europe has improved EU maize production expectations and resulted in a sharp fall (over 12%) in new crop November futures. Corn prices have climbed above wheat in the nearby CBOT contract this week for one of the few times in history this spread has inverted.
Page 2 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
CBOT Corn trading at a premium to CBOT wheat is very rare
Source: Bloomberg, Rabobank
We look to Thursday’s WASDE report to provide direction through until the 30 June acreage and stocks report releases. Our view remains bullish for old crop prices with a risk that old crop supply scarcity lifts nearby (July contract) prices through USD8.00/bu for the first time in history. This may see support for bull spread July/Dec positions once the index rolls are complete and focus returns to old crop balance sheet tightness. Cash prices in the US Eastern corn belt remain elevated and given an apparent lack of grower selling – despite record high prices – processing margins for crushers and ethanol producers are likely to remain under pressure. New crop plantings were 94% complete in the most recent data released (5 June) by NASS, with serious concerns remaining in the ECB with Ohio still only 58% planted. Early season crop conditions which show the crop rated as 67% good/excellent, is very close to the 10 year average. With final corn plantings now almost certainly going to fall 1‐2 million acres below the USDA’s initial estimate of 92.2 million planted acres, an above trend yield will be needed to help inventories recover. Strong export demand for US corn this week with Mexico securing 823 thousand tonnes over the 2011/12 and 2012/13 seasons. Also suggestions that China has secured another panama of US corn. Interesting data point for global corn demand, one of the strongest sales on record despite such elevated prices along the curve.
Oilseeds Soybeans Nearby CBOT soybeans are likely to remain contained this week after closing above USD 14/bu last week for the first time since March and amidst increased Brazilian supplies. However, we expect any price correction to be short‐lived as Chinese demand is poised to increase and US production risks remain. The planting pace of most US spring crops remains behind schedule which, in our view, will result in the most bullish scenario for CBOT corn prices. We expect this will spill over to CBOT soybean prices as the soybeans/corn ratio remains at a 4‐year low of under 2. Page 3 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
CBOT soybeans would likely benefit from a bullish WASDE report for corn as soybeans/corn ratio of remains at a 4‐year low
Source: Bloomberg, Rabobank
Brazil’s exports are positioned to show a later‐than‐normal seasonal peak due to ongoing logistical issues as a result of the delayed harvest. Conab again raised their production forecast from 73.6 million tonnes last month to 75 million tonnes in their June report. However, we expect this to be met by increased demand from China where crush margins are poised to improve. China’s retail vegetable oil price caps were reportedly lifted, which will increase their soybean import demand in coming months. China’s domestic crush margins have been negative since March as crushers have been unable to pass higher prices along to consumers due to price caps. This coincided with China’s YOY declines in soybean imports from February to April. However, without price caps we expect China’s domestic crush margins to improve and prompt increased soybean imports for the remainder of the marketing year.
Brazil’s delayed soybean harvest will cause a later‐than‐ normal peak in exports
China’s crush margins are poised to increase from their negative levels thereby boosting soybean import demand
6
Million tonnes
5 4 3 2 1 0 Oct
Nov
Dec
Jan
Feb
5-year range
Source: Bloomberg, Rabobank
Mar
Apr 09/10
May
Jun
Jul
Aug
Sep
10/11
Source: Bloomberg, Rabobank
Palm Oil Palm oil prices will likely see further downward pressure in the short term due to a broader weakness in the oils complex and a lack of new fundamental news. We expect this to be short‐lived as China and India increase imports in coming weeks as global vegetable oil availability declines.
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Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
Malaysia’s April exports of palm oil reached a record high 1.35 million tonnes while China’s imports rose to a 4‐ month high of 453,089 tonnes in May. We expect production to continue to increase in Malaysia and Indonesia which will be met with increased demand. A YOY decline in China’s oilseed planted area and Europe’s growing biodiesel industry will continue to increase their import demand — giving palm oil prices limited downside.
Malaysia’s April palm oil production was the highest on record at 1.53 million tonnes
2.0
1.7
1.9
1.6
1.8
1.5
1.7
1.4
Million tonnes
Million tons
Growing demand pushed Malaysia’s May exports of palm oil to a record high 1.35 million tonnes
1.6 1.5 1.4 1.3
1.3 1.2 1.1 1.0
1.2
0.9
1.1
0.8
1.0 Oct
Nov
Dec
Jan
2008
Feb
Mar
2009
Apr 2010
May
Jun
Jul
Aug
0.7
Sep
Oct
2011
Nov
Dec
Jan
5yr range
Source: Bloomberg, Rabobank
Feb
Mar
Apr
10/11
May
Jun
Jul
Aug
Sep
5yr avg
Source: Bloomberg, Rabobank,
Rapeseed Rapeseed prices will see short‐term weakness as the market views the recent EU rains as bearish. However, this will be short‐lived as the rains have provided more benefit to spring crops planted later, and are likely too little too late to repair the damage done. Furthermore, production risks in Ukraine and Canada continue to escalate while our forecast for China’s crop at a 4‐year low will continue to support rapeseed prices. Most of Ukraine’s soil moisture content is below 50% which is threatening rapeseed yields
Current soil moisture content is below the level of last year at the same time
Source: USDA‐FAS, Rabobank
Source: USDA‐FAS, Rabobank,
Matif rapeseed will likely continue trading at an elevated premium to CBOT soybeans as we forecast lower production than the USDA for Ukraine, China, the EU and Canada. Due to adverse weather and lower planted area we expect global rapeseed production to decline by more than 1 million tonnes YOY as compared to USDA’s forecast for an increase of
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Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
over 2 million tonnes. The situation is particularly tight in the EU where we expect record‐high imports to be necessary to satiate demand. Lower supplies will require further demand rationing — particularly in the EU biofuel sector. This will continue to be supportive of rapeseed prices particularly in an environment of rising energy prices. We expect biodiesel’s premium to rapeseed oil to continue to weaken and slow biodiesel demand as was the case in Q1 2011. Rapeseed oil prices must continue trading at an elevated level in order to reduce biodiesel’s premium and slow usage
Source: Bloomberg, Rabobank
Softs Sugar Sugar prices have been well supported in the past month by strong spot white demand, lower Brazilian output, concerns about Thai port delays and an early monsoon lowering 2010/11 output potential from India. However, upside movement should be limited by the expectations of better availability of supply in a number of major producers in the coming season. Sugar prices are higher in the past month with white values outpacing raws
Source: Bloomberg, Rabobank
The Indian monsoon arrived early shutting mill operations but improving prospects for the new season. It looks likely that 1 million tonnes of cane will remain uncrushed in 2010/11, but plantings for 2011/12 have already reached 5.06 million hectares as of 3 June, up from 4.86 million at the same point a year ago.
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Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
Port delays in Thailand have supported international prices, but a sunken barge that was a major problem has now been cleared suggesting the situation will get better. There is still a major supply of sugar in the nation waiting to be exported, and with the crush over and white premium high, exports of white are expected to grow. The white premium has surged on strong white sugar demand, likely overcorrecting after sustained low levels. Thai white supply coming on line, a ramp‐up of Middle Eastern refiners, and better prospects for EU sugar, which is all exported as whites, will likely pressure the premium. The size and yields of the Brazilian harvest remains unclear and a major bullish supporting factor in the market, with expectations for the season being reduced by trade. While supply might not reach previous forecasts because of low yields due to negative weather, the season is sufficiently long to allow a bounce‐back when processing of newer cane begins. Prospects for beet output in the CIS are positive, with a producer group in Ukraine reporting a production increase of 40% this season. and the Russian crop supported by generally favourable weather. The larger supply in the CIS is expected to mean lower imports in the new season. Reports of sugar shortages in Germany confirms the tight supply situation in the EU, but good rainfall in dry beet‐ growing regions suggests next season’s crop will be able to meet expectations, and with better supply, domestic prices should ease.
Cotton Cotton prices on the NY futures exchange fell modestly in the past week due to macroeconomic concerns and improved prospects for new season crops. New crop prices are likely to continue to fall if weather is supportive, but given the low inventories and the dry conditions for much of the US crop, downside bias is expected to be limited as the risk premium will remain. Cotton futures prices on ICE and the ZCE exchange have fallen in the past week
Source: Bloomberg, Rabobank
Funds, looking for bargains, came back to the cotton #2 market increasing the net long position by 30% in the three weeks to 31 March, helping prices rise. But speculator‐buying is likely to have waned due to the rainfall in India and China, and fears about the global economy.
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Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
The speculator net long position in New York cotton rose in the three weeks to 31 March 100
250
80
US¢ / lb
Thousand Contracts
200 60 150
40 20
100
0 50
-20 -40
0
Speculators (Managed Money & Other Reportables)
Source: Bloomberg, Rabobank
ICE Cotton (RHS)
Indian plantings are well ahead of the previous season at 1.48 million hectares, up from 1.15 million, and as the monsoon has started early, crop potential looks strong for the new season. Dry conditions remain in the cotton area of China but rainfall in the past week was supportive for growth. Forecasts for the coming week suggest plentiful precipitation in eastern cotton regions, a bearish factor for prices.
Coffee Coffee prices have been bouncing sideways since mid‐May as speculators have liquidated long positions while end users were buyers . As weather remains benign in Brazil and macro uncertainty encourages funds to take risk off the table, prices look vulnerable to further downside if roaster‐buying slows. The ‘C’ contract in NY has traded sideways while the London Robusta market has fallen in the past week
Source: Bloomberg, Rabobank
Frost in Brazil has not occurred, and is not expected to materialise, which is prompting some weather speculators to cover positions. With supportive weather, the Brazilian crop is expected to be the largest off‐season harvest ever, at a forecast 46 million bags. Brazilian growers are holding off on new crop sales; with farmer coffers full due to high prices in the past season, there is little reason to sell early. The big question is whether this will continue in the face of falling values. With harvest conditions supportive and speculators leaving the market, farmer selling could be expected to push prices lower The Managed Money net long position in the ‘C’ contract has dropped 56% in the month of May to levels not seen since June 2010 when prices were near USc 140/lb. Page 8 of 11
Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
The speculator net long position in the “C” contract has fallen 56% in May as funds liquidated positions 60
Thousand Contracts
50
40
30
20
10
0
Speculators (Managed Money & Other Reportables)
Source: Bloomberg, Rabobank
Cocoa Cocoa prices were lower in the past week as the burden of short‐term bearish fundamentals continued to weigh on values. Barring any negative weather impacts, prices in the short term will likely continue to ease, but the longer term new season fundamental outlook is bullish due to the forecast supply deficit. Cocoa prices continue to fall due to normalisation in Ivory Coast
Source: Bloomberg, Rabobank
While strong industry‐covering has been friendly for prices, speculators are liquidating long positions, which is weighing on prices. The Managed Money net long position fell by 71% in the three weeks to 31 March, while the end users increased the long position by 13% in the past four weeks.
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Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
08 June 2011
The speculator net long has fallen significantly since the end of the export ban in March 35 30
Thousand Contracts
25 20 15 10 5 0 -5 -10 -15
Speculators (Managed Money & Other Reportables)
Source: CFTC, Bloomberg, Rabobank
Average weather conditions in West Africa indicate new season crops will be closer to trend yields, suggesting next season’s crop will not be sufficient to cover demand. This is likely to temper any price correction in the short term.
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Agri Commodities Market Research Rabobank Agri Mail – Where to for markets this week?
Agri Commodity Markets Research Luke Chandler Global Head +44 20 7664 9514 [email protected] Keith Flury Senior Commodity Analyst +44 20 7664 9676 [email protected] Erin FitzPatrick Commodity Analyst +44 20 7664 9540 [email protected] Rabobank Food & Agribusiness Research and Advisory www.rabotransact.com
08 June 2011
Global Financial Markets Corporate sales contacts: ASIA―Brandon Ma +852 2103 2688 [email protected] AUSTRALIA―Terry Allom +61 2 8115 3103 [email protected] EUROPE―Martijn Sorber +31 30 216 9447 [email protected] BRAZIL―Sergio Nakashima +55 11 5503 7150 [email protected] US―Bruce King +1 212 808 6908 [email protected] US―Neil Williamson +1 212 808 6966 [email protected] MEXICO―Marco Garcia +52 55 52610029 [email protected] CHILE―Enzo Folch +56 2 8730332 [email protected]
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