Normal yields, low margins, rampant soy to alleviate corn woes: Rabobank

The storming success of soy is set to alleviate the pressure on current corn markets, as low margins on corn production, incentives to grow soy, and a return-to-normal yields should see production decline in 2018/19, a report from Dutch bank Rabobank concludes.

A clear out in stock levels and an anticipated contraction in the US acreage planted for corn is likely to lay the groundwork for the recovery, which comes after bumper corn harvests have seen markets establishing a series of record lows.

With only a modest increase in production anticipated, stocks will have to step in not least in China where the report highlights government policy as a key element in incentivising internal corn demand.

Three years of poor margins are likely to see farmers switch away from corn production in the US, leading to a reduction of some 500,000 acres in US corn planted area as spring wheat offers a greater incentive. Under some circumstances, the report anticipates soy acreage may surpass that of corn for the first time, although both are expected to come in at around 89.9 million acres.

With the decline in US acreage any return to normal on the yield front will also see production volumes take a hit, with Rabobank expecting the US harvest to come in at around 14.1 billion bushels – down from the 14.5 billion bushels that November’s WASDE forecast for the 2017/18 harvest.

With US demand set to increase to 5.6 billion bushels, and US stocks to decline to 282 million bushels, the scenario should support a price above $4/bu for “large parts of the 2018/19 season.”

Outside the US, the report acknowledges that it’s early to call the South America picture, but notes the reduction to soybean export taxes in Argentina that is likely to see soy incentivised at corn’s expense.

Alongside that, recovering freight rates as the shipping industry moves into a new era of cleaner fuel requirements are likely to make South American origins harder to work into Europe and the Middle East destinations, handing an advantage back to the Black Sea.