High grain and soybean prices 'here to stay'

High grain prices are "here to stay" – but in particular for soybeans and wheat rather than corn, which looks the most susceptible to an easing in supply tightness.

World stocks of the big three agricultural commodities look set to remain at a "rather uncomfortable level" in 2011-12, ensuring that there is "little chance of seeing grain prices collapsing in 2011", Societe Generale said.

"Prices should remain at a relatively high level until the end of the year," the bank said.

However, corn looked set to prove the weakest of the trio, given the economics which favour growers focusing on the grain in favour of other farm commodities.

"Given current prices for new crops, corn will yield far greater returns than soybeans for US farmers."

Corn vs soybeans vs wheat

Indeed, world corn output will exceed consumption by 26m tonnes in 2011-12, more than reversing the decline in inventories this year.

SocGen forecasts for world crops 2011-12 and (year-on-year change)

Corn - output 874m tonnes, (+7.9%); consumption 848m tonnes, (+2.0%)

Soybeans - output 261m tonnes, (+2.4%); consumption 269m tonnes, (+5.5%)

Wheat - output 670m tonnes, (+4.0%); consumption 673m tonnes, (+1.5%)

The grain's stocks-to-use ratio - a key measure of the availability of a crop's supplies, and therefore of the prices it can command – will recover to 17.7% from a "critically low" 14.9% this season.

However, wheat inventories will continue to decline, albeit by a modest 2m tonnes, held back by the impact of drought in holding back Russian winter sowings, and depressing US production despite an "impressive" rise in plantings.

And global soybean stocks will fall by 8m tonnes – the third shortfall in five seasons – as logistical costs put the brakes on expansion in Brazil's arable acres.

"Given that corn fundamentals should improve the most, we see corn as the most bearish market," Societe Generale said.

"Soybean fundamentals are those likely to tighten most in 2011. We therefore see soybean prices as being more bullish as early as the second quarter, when tight prompt supplies and confirmation of subdued growth in US plantings combine."

Weather warning

However, the bank echoed a Goldman Sachs report on Monday in warning of the risk to prices presented by weather setbacks, with its forecast for an aggregate production surplus of 16m tonnes between the three crops presenting "only a narrow margin of security".

SocGen 2011 crop price forecasts

Corn - Q2, $6.80 a bushel; Q3, $5.80 a bushel; Q4, $5.50 a bushel

Soybeans - Q2, $15.00 a bushel; Q3, $15.20 a bushel; Q4, $15.00 a bushel

Wheat - Q2, $7.90 a bushel; Q3, $8.00 a bushel; Q4, $8.20 a bushel

"Slightly disappointing crops in some major producing countries could remove the surplus completely, and the world would then face another year of deficit and tightening stocks.

With world stocks, "and US stocks in particular, already at a critically low level for corn and soybeans, this would undoubtedly send grain prices further up".

(Source: http://www.agrimoney.com/news/high-grain-and-soybean-prices-here-to-stay--2959.html)