This week’s column examines the potential for the corn market to move from simmer to boil, but don’t miss the last bit that talks about developments in China that could influence its canola imports long term.
Market-moving agriculture news in the last few weeks has largely been about oilseeds but corn might gain the spotlight in coming weeks.
Lately, the market fixated on steadily falling forecasts of South American soybean production. We knew that drought was affecting production in Argentina, Paraguay and southern Brazil back in January. But when the crop was harvested, yields turned out even worse than expected, especially in Argentina.
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That caused soybean importers, largely China, to continue buying from the United States instead of shifting to South America as they normally do at this time of year.
The huge and surprising demand will reduce U.S. soybean stocks at the end of the crop year. The U.S. Department of Agriculture on May 12 forecasted a 130 million bushel carryout or a tight 16 days of supply. But many traders now think it will be lower and numbers as low as 70 million bu., or eight days supply, have circulated.
That is too tight and the recent price rally reflects the market’s effort to ration demand. Traders speculated that soybean futures could top $12 per bu. this week.
But the rally, which also lifted new crop soybean futures, might encourage farmers already thinking of switching out of corn because of the delayed seeding date to make the move. Rain in Illinois on May 25 caused further seeding delays in the eastern corn belt.
That would increase the prospect for 2009-10 soy production and reduce corn production.
In addition to the reduced acreage, the USDA’s forecast for average corn yield to rise by one percent over last year seems optimistic. The crop will suffer the same late-seeding drag on yield as last year and is expected to be treated with less fertilizer.
The USDA already expected domestic corn stocks at the end of 2009-10 to drop to 29.09 million tonnes, the lowest level since 2003-04.
That is 33 days of supply, down from 48 days at the end of 2008-09. The potential for smaller seeded acreage and lower than forecast yields could shave several more days from that supply. That would provide good support for grain prices, including wheat and barley.
Chinese breed high oil rape
Chinese plant breeders have developed rapeseed varieties that have 55 to 60 percent oil content.
It could be a breakthrough for a country that relies on imports of oil and seed for about 60 percent of its vegetable oil needs.
China is expected to import a record 2.5 million tonnes of Canadian canola seed this year and is also importing a record amount of American soybeans.
Chinese crushers import Canadian canola partly because, at an average 42 percent oil, it contains more oil than existing Chinese varieties. Soybeans have about 20 percent oil.
But Canadian canola’s lead will be relinquished if the 20 new Chinese high oil lines now undergoing trials prove to be commercially viable.
The new varieties could raise China’s per acre vegetable oil output by nearly 30 percent, according to a report on www.chinadaily.com.
The country is expected to produce about 13 million tonnes of rapeseed this year.
