Market Matters Blog

The corn stocks-to-use ratio could fall to 4.7% for 2012-13, the lowest ever recorded, according to a recent forecast by the research arm of agriculture lender Rabobank. That creates a strong fundamental case for the upside of corn futures prices, especially if export demand exceeds USDA's expectations, the report states.

Rabobank estimates that corn exports are likely to be 50 million bushels higher than USDA is forecasting. The bank also increased its forecast for feed use, which, even though it remains below USDA estimates, is "higher than can be accommodated by the U.S. corn balance sheet with higher prices needed to pressure livestock producer margins in the first half of 2013," the report stated.

The continued corn demand is likely to drive prices upwards, further facilitating the shift to wheat feeding. Rabobank expects wheat feeding to reach the highest level since the 1998/99 growing season at 375 million bushels, about 25 mb more than USDA's January forecast. Cash feeding margins are making wheat inclusion $0.25/bushel cheaper than corn on an equal weight basis.

"Feed grain fundamentals remain key to CBOT Wheat price upside as untenable fast growth in U.S. domestic corn demand and wheat feeding is expected to drive U.S. wheat stocks lower," the report said.

Global buyers are also shifting to the U.S. wheat market as exportable supplies in eastern Europe and Argentina decline. The top 13 importing nations have had 37% of their full year needs imported already, compared to an average level of 30%, which Rabobank suggests means that USDA has underestimated the import needs of nations like China, Turkey and Iran. U.S. wheat is now the world's cheapest, and Rabobank forecasts that the U.S. will ship 2.9 million metric tons per month for the remainder of the year.

Price Forecasts:

Corn: "Rabobank forecasts further upside for CBOT corn pirces in the wake of bullish January USDA data with Q1 2013 prices forecast at $7.70/bushel, roughly 40 cents above March futures prices."

Wheat: "Rabobank reduces its Q1 CBOT wheat price forecast by 70 cents per bushel to $8.30/bushel, although we'll still see a 60 cent per bushel upside from current prices.... Deferred wheat futures forecasts are increased 25 cents per bushel to $7.50/bushel in Q3 and $7.25/bushel in Q4 due to lower expectations for the 2013/14 production in the U.S. and Russia."