April 3, 2013
Analysts have described the grain trading room as a “bloodbath” over the Easter period, following a US Department of Agriculture (USDA) stocks and planting report that released a series of surprisingly bearish numbers. Australian farmers are now left with a set of prices that now vary very little from those on offer this time last year, in spite of the rapid rise seen last June as the US crop suffered through the record drought there. Aussie APW prices came back by up to $30/t on Tuesday in the first day of trade after the report, to sit around $240/t. A slightly positive basis means this is above the direct dollar translation of Chicago Board of Trade May 13 futures, which were at US664 cents a bushel, or $A234/t. CBOT May 13 futures have come back US72c/bu or 9.7 per cent since last Thursday. The major talking point was corn ending stocks, which were up to 8pc higher than most trade estimates at 5.4 million bushels, compared to trade estimates of 5 million bushels. Along with that, there are record corn plantings in the US – 97.3 million acres (40.1mha), the largest plant since 1936. It led to hefty falls in US corn prices, which came back to US642c/bu, representing the biggest two-day fall in corn values since 1996. Commonwealth Bank commodity analyst Luke Mathews said the report saw the funds exiting the grains sector en masse. “It was a bloodbath out there, and there’s very little for the bulls to get excited about in the near future,” Mr Mathews said. However, he did say early Tuesday morning, trade had calmed somewhat, and added that ending stocks were still historically tight. “There might be higher stocks than people expected but in the long term sense they are still tight.” Rabobank grains analyst Graydon Chong said it was a classic case of market dynamics. “The old adage that nothing cures high prices like high prices has come true,” he said. “There’s been a rationing of demand and also farmers have the incentive to plant crops so combined that is bringing price levels back.” MarketAg director Mark Martin said the difference between trade and USDA estimates in terms of stocks had some questioning the validity of the USDA data. “The physical US market hasn’t dropped by as much, which suggests that stocks are still tight,” Mr Martin said. However, he said the market still had technical support, but if it broke new lows there could still be further sustained downside to the market. “We are line-ball equal with last year’s prices, and then we had the sharp spike in prices, but that was due to a one in fifty year drought.” But he still said weather concerns would be the major chance of a rally in the market in the coming months as the new crop was planted. “It’s still very early days and the spring crop isn’t even in the ground yet, so that will be what the market is watching,” Mr Martin said. Mr Mathews agreed there was a long way until physical stocks caught up with market sentiment. “It’s a big plant, but this time last year we were talking about a big plant, and then the drought kicked in,” he said. “The statistics would say it’s unlikely we get two big droughts in a row, but agriculture doesn’t tend to listen to statistics.” Mr Chong said the major concern in terms of northern hemisphere crop condition remained in the US. “The winter wheat crop, which is all that’s in the ground at present, only has 34pc ranked good to excellent, which is down year on year.” He said conditions were more favourable in western Europe and the Black Sea production block.