(Agrimoney) – The retreat in corn futures close to contract lows may represent a buying opportunity, with US exports poised to pick up, Morgan Stanley said, while proving downbeat on soybean price prospect.
“Near-term price weakness may provide a solid opportunity to buy corn for the medium term,” the bank said, shrugging off concerns over the disappointing US export performance so far in 2015-16.
US corn export commitments – actual exports plus orders yet to be completed – had reached 13.15m tonnes as of October 29 for the current season, down 32% year on year.
However, Morgan Stanley said that “we maintain that export weakness is a near-term problem for corn”, with sales poised “to accelerate in the medium term to meet global import needs”.
‘Export pick-up’
The assessment comes despite strong, and increasing, projections for corn exports from Brazil, the second-ranked shipper of the grain.
The US Department of Agriculture bureau in Brasilia on Friday forecast volumes of 26.0m tonnes in 2015-16 – 1.0m tonnes above the department’s official estimate.
However, these exports are seasonal, typically declining from December through to April, before coming onstream again in August.
“Sharply lower” output in most major corn export origins, notably Argentina and Ukraine, will “necessitate a pick-up in US shipments when Brazil’s old-crop shipments wind down in the coming months”.
Expansion needs
As an extra boost to US corn price hopes comes from the need for extra production next year to avoid tight supplies – area expansion which will require financial incentive to growers.
“US acreage growth requires December 2016 prices above $4.25 a bushel, the marginal cost of production, by March, when farmers make their planting decisions,” the bank said.
Some of this area expansion may come at the expense of soybeans, for which US export prospects are not nearly so strong.
“US soybean exports are likely to face more competition than corn, as South America has record supplies of the former,” Morgan Stanley said, highlight the prospect for “hoards” of the oilseed to be unlocked in Argentina, assuming presidential elections this month herald a loosening in crop export taxes and red tape.
‘Soybeans to underperform corn’
The need to promote corn acreage over soybean sowings in 2016 will put pressure on the much-watched ratio between November 2016 soybean futures and December 2016 corn futures.
“Soybean prices are likely to underperform corn over the course of 2015-16,” the bank said, recommending that investors sell the soybean-corn ratio “on rallies”.
The ratio stood at 2.22 on Tuesday, in somewhat neutral territory, well below the levels of 2.5 and above, for 2015 November soybean futures and December corn futures, which helped spur elevated seedings of the oilseed this year.
The spot December 2015 corn contract stood down 0.1% at $3.66 ½ a bushel in Chicago on Tuesday, within $0.10 of a contract low set three months ago.
