US grains – bullish fundamentals
Last week, the USDA issued February crop estimates, and the theme for the grains complex was overtly bullish. Notwithstanding high energy prices, poor weather in other origins, and the weak dollar, the outlook for the US supply situation will provide constructive price support in the near term. Starting with wheat, while the USDA is estimating winter wheat acres to increase from last year, their estimate is still not going to keep pace with demand – ending stocks for the 07/08 crop year are at 272 million bushels, which would be the lowest stock levels in the last 60 years. For corn, the USDA estimates the 07/08 crop to come in at just under 1.44 billion bushels; this estimate did not decrease from the previous estimate, but corn demand has strengthened, so the stocks-to-use ratio will likely decrease. The 07/08 soybean stock estimate also decreased, which also will decrease the S-U ratio for beans. Poor weather in Argentina with potential flowering delays may further decrease global stocks. All things considered, the outlook for grains is to continue to trade in a sideways to bullish channel, and more importantly, we will see increasing levels of volatility as we approach corn/soybean planting in the US.
