The U.S. Department of Agr icul ture provided fresh fuel to the already bullish grain and oilseed markets Nov. 9, and all but confirmed that an intense acreage battle among the world’s key food crops looms in 2011.
Soybeans have been the chief momentum gainer in the immediate wake of the report after the USDA shaved U.S. production more aggressively than many had expected, but the prices of all the world’s top crops – including corn, cotton, rice, sugar and wheat – look set to retain bullish biases as they fight off potential acreage losses over the coming growing seasons.
The USDA’s downward adjustment to the U.S. soybean yield was contrary to market expectations for a yield increase, and was the chief catalyst for the strong gains seen in soybean prices since.
When matched with an upward adjustment to U.S. soybean export projections, the end result was an aggressive lowering in U.S. soybean carry-over to 185 million bushels – which is nearly half of the USDA’s early-summer carry-out projections for U.S. soybeans.
This tightening in U.S. soy inventories has in turn dialed up the importance of the emerging South American soybean crop, which is already off to a late start due to historically dry soil conditions and still has to contend with the La Nińa weather phenomenon that tends to result in lower overall rainfall across key producing regions.
Producers in Argentina and Brazil are still in the midst of planting their crops for the upcoming season, but conditions there will be tracked especially closely going forward for signs of crop stress as well as hints on planted acreage totals, which will provide clues on double-cropping opportunities once the current crops are harvested.
The late start to planting in key areas such as Brazil’s Mato Grosso region theoretically limit the amount of time farmers there will have to follow up this year’s soybean crop with a planting of corn or cotton early next year.
But with global crop prices all homing in on multi-year highs, the incentive is there for farmers to maximize output wherever possible, and weather conditions at harvest will remain the final determinant of the degree of followup plantings that will occur.
COTTON, SUGAR ALSO STAKING ACREAGE CLAIMS
While the USDA’s main focus was on the major food crops such as corn and soybeans, other commodities such as cotton and sugar also received a boost given the “zero sum” perception of acreage availability in key growing regions – i.e. production gains of one crop must come at the expense of another.
While most crops are in actuality hard to dislodge through price action alone, this perception among traders that each is vulnerable to production losses unless values sharply appreciate should serve to sustain buyside interest in each market going forward, and underpin crop prices for the foreseeable future.
What’s more, as can be seen in the interactive graphic, a combination of robust demand and a series of global production hiccups has resulted in the stocks-to-use ratios of each crop having declined toward their lowest levels in years, heightening the attraction of the “crop” sector in general and ensuring that each has the potential to rally further on any signs of production problems.
In all, today’s slew of USDA updates served to confirm an enduring tension in all the world’s major crops that should serve to keep each commodity on investor and trader radars for the foreseeable future. Any signs of production problems over the coming months in any of the world’s key growing regions – and in any of the top crops – will only further intensify supply concerns, so while soybeans may be at the centre of attention currently, every crop will likely get its day in the sun as each tries to fend off production cutbacks.
Gavin Maguire is a Reuters market analyst.