Analyst: Market sees demand not being met
A fall ag weather and market outlook webinar presented by DTN last week shows there is still a possibility the La Nina situation could continue into 2012 and that reduced acreages in corn and soybeans could make for some interesting supply and demand issues.
Bryce Anderson, DTN senior ag meteorologist, said that questions revolving around a La Nina event are dominating 2012 thoughts in the weather.
“There are a lot of questions whether we are going to have a La Nina situation again in the Pacific as we go through the rest of this year and into 2012,” said Anderson.
He said studies indicate that a historically strong La Nina as in 2010 and through the spring of 2011, that the odds are pretty high, over 50-50, that we could have at least a weak La Nina this fall and winter 2012.
“If that does occur,” he said, “that increases the chances for a continued drought in the southern plains, and a possibility of more winter-time moisture in the northern plains and western Corn Belt.
“All of these issues could play a part on how we shape up for soil moisture going into next spring’s season,” said Anderson.
The La Nina of 2010 and 2011, he said, measures the strongest since the La Nina event of 1988-1989, which happened to bring the drought of 1988 to the Corn Belt.
As far as the upcoming harvest weather outlook, Anderson said, the jet stream is showing no imminent threat of frost over the northern growing areas.
“So the weather is looking favorable over the next week or so,” he said.
The National Oceanic and Atmospheric Administration have predicted a warm fall temperature pattern throughout the plains and the western Midwest through the end of 2011.
“There are no real cold conditions as we look ahead through the fall season,” said Anderson.
Continued warmth and dryness, Anderson said, should make for a quick harvest.
“Weather is most favorable for a row crop harvest considering how things have dried down. We are on pace to have a brisk harvest in that respect,” said Anderson.
A drought monitor shows that there is severe dryness in much of the central Corn Belt, with extreme drought in the southeast and an extreme to exceptional drought occurring in the southern plains of Texas.
It has been those hot and dry conditions, Anderson said, that will most likely lead to crop conditions assumed lower.
The crop moisture index shows abnormally to excessively dry in the eastern Midwest; severe dryness in the southern plains and southeast U.S. Anderson said this is mainly due to the strong La Nina from last year and that didn’t let up much this year.
Anderson said he is having some concern for moisture levels in South America, as well.
The northern part of central and northern Brazil is dry with southern Brazil actually above normal in soil moisture.
He said he is especially concerned with Argentina.
“There is concern for wheat moisture and soil moisture ahead of corn and soybean planting,” said Anderson. “Quite a bit of Argentina is dry, and there is a high correlation of an effective La Nina and a dry Argentina.
Darrin Newsom, DTN senior analyst, said that with the 2010 harvest being smaller than expected which made the domestic ending/beginning stocks lower than expected, there needed to be ideal planting, growing and now harvest conditions in 2011 in order to start rebuilding those stocks.
“Those ideal conditions just didn’t exist,” said Newsom. “The idea we were going to be able to rebuild stocks just doesn’t look feasible. The market has accepted this with the way it has positioned itself right now with the rally in corn, rally in soybeans. The market has shown it simply doesn’t believe we have re-built supplies.”
Newsom said corn supply and demand could presumably be the seconded tightest on record and the question remains, “What’s going to happen to demand?”
Newsom predicts feed demand most likely will see the biggest cuts; with ethanol second, leaving the export demand the “wildcard.”
“There is certainly no way of altering supplies to where we can create a more bountiful supply/demand situation, so it will have to come from the demand side,” said Newsom.
The initial fall outlook, Newsom said, is for the market to continue to push up against $8 per bushel with the possibility of coming under pressure depending on what price does demand begin to crack.
“Before the August supply and demand reports, investment traders were betting heavily on December contracts surpassing $8,” he said. “I see no reason to think it won’t at this time.”
Newsom said unlike corn, coming into 2011, the global supply and demand for soybeans was quite large, but 2011 production and acres to be harvested remain unknown.
The market for soybeans, he said, is starting to grow more bullish.
“The November contract just moved to a new high, looking to establish a longer term uptrend. The long-term commercial outlook is bullish,” said Newsom. “If corn rallies to $8 a 2:1 ratio of soybeans to corn would imply $16 is possible.”
Issues surrounding the soybean market, Newsom said, include Chinese demand, the global economic situation, South American supplies, which are not expected to be as big, direction of the U.S. dollar index and final U.S. harvest numbers.
Contact Kriss Nelson at firstname.lastname@example.org.
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