Regional Plantations - Corn May Reclaim Its Crown
As expected, US soybean planting to slow
- Over the weekend, USDA’s Prospective Plantings report gave a glimpse of US farmers’ intention of planting lesser soybean in 2019. But ongoing floods in the Midwest and US-China’s trade talks may still sway farmers’ decisions in Apr-May.
- Ultimately, a lower-than-expected soybean planting will be beneficiary for prices, and vice versa. For now, our 12M NEUTRAL view on the sector is unchanged.
- Our BUYs are FIRST RESOURCES LIMITED (SGX:EB5), BUMITAMA AGRI LTD. (SGX:P8Z) and Sarawak Oil Palms.
Corn gaining ground at the expense of soybean
- According to USDA’s Prospective Plantings issued on 29 Mar 2019 (based on a survey of approximately 82,400 farmers), US farmers will likely plant 84.6m acres (-5% y-o-y) of soybeans in 2019, lower than market estimates of 86.2m acres. On the contrary, there are higher US corn planting intentions of 92.8m acres (+4% y-o-y), which came in higher than the market estimates of 91.3m acres.
- Separately, USDA published its stockpile report. As at 1 Mar 2019, US soybean stored totaled 2.72b bushels (+29% y-o-y), slightly beating market estimates of 2.683b bushels and said to be the biggest on record. As for US corn, stocks were 8.60b bushels (-3% y-o-y) as at 1 Mar 2019, exceeding markets’ estimates of 8.335b bushels. The combination of data above led to a -4.7% DoD decline in corn price to USD3.56/bu on 29 March. Meanwhile soybean price was relatively unchanged at USD8.84/bu while soybean oil was down 1% to USD0.2836/lb.
Midwest’s flood may still sway farmers’ decisions
- It was reported that ~1m acres of US farmland is presently affected by the devastating floods in Midwest, just as the main planting season is about to commence. The US farmers typically start planting corn in April, followed by soybean in May. If the situation in Midwest does not improve in the coming weeks, this may delay corn planting and may in turn force farmers to switch crop and plant more soybeans instead.
- Furthermore, the US and China are still working to resume normal trade flows. If successful, this could prop up expectations of improved soybean demand in 2019, and lead to more soybean planting. Hence, we will watch out for USDA’s June 28 Acreage report for the actual acreage planting in 2019.
Mother nature has the final say
- US soybean planting intentions in 2019 have broadly met markets’ expectations. Over the next 2 months, the flood condition and weather development in the Northern Hemisphere bears monitoring, and the ongoing trade talks between US and China may still dictate the final planting of US farmers. Thereafter, the crop development in the US will dictate the overall edible oil price direction.
- Any signs of unfavourable weather and lesser-than-expected soybean plantings will be supportive of prices. Otherwise, the prospect of another record soybean planting and harvest in the US will cap CPO price upside.
Ong Chee Ting
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-04-01
SGX Stock
Analyst Report
2.030
SAME
2.030
0.970
SAME
0.970
