Stock exchange news. Despite bad weather conditions and delayed corn sowing campaign in the USA, Agricultural Department is optimistic about 2011/12 marketing year. The official crop forecast rose to 158.7 bushels/acre or 4031 kg/acre in May (April and May crop forecasts amounted to 152.8 bushels/acre).
This year corn crop area in the USA was increased to 92.2 million acres, in comparison to the last year’s area of 86.4 million acres. Taking this into consideration, crop forecasts in 2011/12 marketing year remain at the level of 13505 bushels/acre or 343.03 million tons (according to April crop, 12447 million bushels, 316.15 million tons).
The release of the Department’s report on May 11 put corn price under considerable pressure. As a result, its price declined by 4.7% during the session.
According to official forecasts, corn transit stock in the USA will amount to 900 million bushels or 22.8 million tons (April forecast claimed 675 million bushels or 17.1 million tons) due to export decrease. Market participants are perplexed by the results of official forecast, for the majority were inclined to lowered crop forecasts (April crop as maximum).
In April – June major corn sowing treatment is carried out in the USA, China, EU, Mexico, and India.
The forecast of the world’s corn production in 2011/12 marketing year amounts to 867.73 million tons or 34.16 billion bushels, namely: 343.04 million tons in the USA, 172 million tons in China, 59.29 million tons in EU, 24.5 million tons in Mexico, 55 million tons in Brazil, 26 million tons in Argentina, and 12.5 million tons in South Africa. In comparison to April data, the forecast increased by 6.5 %, namely: USA – 8.5%, China – 2.4%, EU – 7.4%, Mexico – 11.4%, Argentina – 18%, and South Africa – 4.2%.
In the long-term, the price trend is influenced by forecasts of the world’s corn trade volume in 2011/12 marketing year, which amounts to 91.8 million tons. This is 1.1 million less than in 2009/10 marketing year.
Main factors:
- decrease of corn export from the USA by 2.5 million tons to 46 million tons;
- increased cultivation in EU, which will lead to import decrease from 6.5 to 4 million tons;
- forecast of corn import in China amounts to 0.5 million tons, mostly from neighboring countries;
- decrease of corn import level in South Korea by 0.3 million tons;
- increase of corn export form Argentina to the historically high level of 17 million tons;
- decrease of corn export level from South Korea and Brazil by 2 and 3 million tons accordingly, which is caused by high transport expenses;
- forecasted increase of corn production in Ukraine up to 6% (by 0.5 million tons);
- rapid increase of corn production in Russia, gives assumptions to expect that next marketing year export will amount to 1 million tons.
US weather conditions, which caused the delay of corn sowing campaign, cast doubt on the forecasts of this year’s corn production. As the USA is the world’s leading exporter of corn, the data on yield capacity in this country supports its price or puts it under big pressure.
As of May 8, only 40% of the area allotted for corn sowing was cultivated. To compare, at the same time in 2010 the area was cultivated by 80%, whereas the average of 59% was cultivated in 2006-2010.
Delayed sowing and abundant rainfall lead to the delayed corn emergence. As of May 8, corn germination amounted to 7% (2010 – 36%, the average in 2006-2010 – 21%).
Nevertheless, the representatives of Agricultural Department assure that sowing at the growing rate will enable to treat all planned corn sowing area this year.
The provided data give ground to forecast a descending price trend of corn till the end of this marketing and calendar year, for in September US, and partially Indian, crop will enter the market.
The option of the development of the wide price flat till the end of August and the existence of fundamental factors in autumn-winter period, which can form the trend in 2011/12 marketing year, is also to be considered.
From the point of view of technical analysis, since new crop from Argentina and Brazil entered the market, the price has been in the state of wide flat 7.84 $/ bushel – 6.08 $/ bushel. This crop entrance has not lead to the breaking price dynamics, and members of the market expect the data about the yield capacity in the USA, China, EU, Mexico, and India. In case of worse crop the option of reaching the price level of 8.00 $/ bushel shall not be rejected, for in such a case there will be no opportunity to increase transit stocks in the countries.
The nearest official report, which will show the volume of corn export from the USA, is going to be published on May 26. The report contains information about quarterly export volume of crop species and provides an opportunity to forecast transit stock of grain crops, which, in its turn, forms the price trend in the last quarter of the marketing year.
The chair of derivatives trading of Masterforex-V Academy
