European Feed Peas Sink

VANCOUVER - Aug 8/08 - SNS -- European feed pea markets were weakened during the past week on general availability of new crop merchandise from growers and general weakness in major agricultural markets.

Grower markets in France were down sharply on the week, a fact reflected in lower trading levels in Belgium and Holland. The United Kingdom is only starting the trek from spot to new crop values, with the result markets there are holding a solid premium to those on the Continent.

Looking at major feed ingredient markets, Alaron Trading Corporation's Tim Hannagan said demand for markets are consumed with the potential contents of Tuesday's USDA crop report and updated supply and demand forecasts for the 2008-09 marketing year.

"This report is the most anxiously awaited report of the year. It is the last real chance to appreciably change the eventual production numbers for corn and beans. Here is what led up to this report: Each year the USDA comes up with its March 30th planted acreage 'Intentions' Report. This report is an estimate of how many corn and bean acres farmers 'intend' to plant based on USDA extension surveys.

"The report suggested farmers would plant 86 million acres down 7 million acres from the year prior. If you plugged the current supply demand outlook for 2008-09 in and apply the trend line yield of 154 bushels per acre, it would leave ending stocks next year at a dangerously low 620 million bushels from 1.6 billion bushels this year; leaving no room for growing season problems.

"Soybean acreage was estimated to be 74.7 million acres versus 63.6 the year prior or about 11 million acres more to insure with this year's low ending stocks, we would not run out in 2009, yet record world supply demand tables suggest ending stocks would only improve 40 million bushels in 2009 versus this year.

"Next came the yearly June 30th final planted acreage report, traditionally being the USDA's final numbers as usually is finished with final farmer polls in. Corn was pegged at 87.3 million acres up about 1 million acres from the March report and beans at 74.5 million acres almost unchanged. This shocked the trade as expectations were that we would see a decline from March 30th- after record rains the first two weeks of June lent thought that flooding left acres either unplanted, or not re-planted," Hannagan said.

"Here's the controversy: The government survey for the June 30th report was believed to have been completed by June 10th. The first two weeks of June saw record rain totals in the western grain belt of Iowa and Nebraska as well as Southern Wisconsin and most of Illinois. Each night on the national news we saw pictures of endless flooded farm fields in Iowa, Southern Wisconsin, and Central Illinois. As the rains subsided the after flow into the Mississippi the following ten to twelve days. This saw a three hundred mile stretch along the Illinois-Missouri border seeing many levees breaking with more valuable farm land looking like oceans and only barn roofs above the water.

"This left traders wondering how the USDA on its June 30th report could be correct. The USDA did a quick survey again into early July but admitted getting hold of farmers removed from flooded farms to find out if they eventually re-planted was impossible. The trade believed the June 30th report numbers were just a review of planting intentions from the March 30th report.

"The USDA did not want to guess, so they set up the August 12th Monthly Crop Report to give its final number as surely that would allow time for an accurate survey. Regardless of what the report says, the market always trades fear before fact. The fear is that all those fields that were heavily under water in parts of Iowa, Wisconsin and Illinois declaring towns and areas a natural disaster, the fear is they could not have dried up before it was too late to plant. Also, there is a chance the report could cut corn and bean planted production 1 to 3 million acres or more from the June 30th report. This could lead to corn ending stock for 2009 at 300 million bushels or lower and beans at 60 million bushels or lower worse case scenario. Needless to say, that would send both markets into supply side price rationing possibly pushing us to new highs on the year 'if acres are low enough'.

"There is a downside to this report. When spring planting began corn and beans saw measurable delays in field work. Even as the rain totals mounted, farmers seemed to get into fields getting work done when it seemed impossible. The high prices for both corn and beans at planting seemed to have farmers planting between the rain drops, knowing this was going to be the most profitable crop in history. This makes us think maybe the June 30 report is not far off as growers may have simply planted previously flooded land even though traditional planting psychology said it was too late to plant. Yields would be miserable. The math does show that half a yield at 14.00 per bushels is equal to a full yield at 7.00 per bushel," Hannagan said.

"Additionally, the USDA Secretary of Agriculture Ed Schafer may have tipped us to the August 12th report when on July 29th he said the June flooding did not do as much damage to crops as feared and it will not be necessary to free up land from the conservation reserve program that farmers are paid to not plant on. This is land considered environmentally sensitive. Surely he must have come to such an important dissipation only after review of the recent farmer's poll on acres planted to be released next Tuesday. If farmers were indeed diligent in planting previously flooded lands, regardless of potential yields, we could see an increase in corn's ending stocks from current estimates of 833 million bushels to 1 billion bushels or more and beans to safer levels as well. This could lead to a sharp supply side break before cash harvest demand re-enters," Alaron Trading Corporation's Hannagan said.

Looking at some factors affecting feed market valuations, the nearby delivery option for soybean meal futures finished the week's trading on the Chicago Board of Trade (CBOT) at U.S. $326.30 a short ton, versus $373.90 last week.

Spot Canadian field pea grower bids were unchanged at CDN $10 per bushel for No 2 grade whole green peas or roughly U.S. $311.90 short ton -- representing 95.6% of the value of spot soymeal, versus 86.7% last week.

Spot Yellow peas finished the week down $1.84 at CDN $323.34 per MT or roughly U.S. $274.50 a short ton -- representing 84.1% of the value of the CBOT's nearby contract, versus 76.8% last week; while spot feed pea bids finished the week unchanged, ranging up to CDN $202.09 MT or U.S. $171.50 short ton -- representing 52.6% of the value of the nearby soybean meal futures contract, versus 47.7% last week.

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