The dent to corn prices from bird flu may have been “overdone”, Morgan Stanley said, citing the relatively low infection rate so far in the US poultry flock – and the greater exposure of soymeal to the outbreak.
A drop of 4% in Chicago corn futures last week to a six-month low was attributed largely to growing concerns over the spread in the US of H2N5 avian influenza, Morgan Stanley said.
The outbreak, found in flocks totalling some 7m birds, last week prompted both Minnesota and Wisconsin to declare states of emergency.
However, Morgan Stanley said that “while we do not profess to know how wide avian flu’s impact could ultimately spread, we see the current reaction as outrunning the fundamental reality”.
‘More bearish for soybeans’
The populations of flocks infected so far, comprising about 4m chickens and 3m turkeys on US Department of Agriculture numbers, represents 0.05% and 1.4% respectively of the total number of birds slaughtered per year.
And poultry “as a whole accounts for only 34% of US grain feed consumption, further limiting the potential impact” on corn prices of sector setbacks, Morgan Stanley said.
Indeed, if H2N5 does spread in the US, it may have greater implications for oilseed meals, of which the poultry industry is a particularly big user.
“Even in the worst case scenario of an unchecked spread of the disease, we would see such an event as more bearish for soybeans than for corn, as poultry accounts for 57% of soymeal and other high-protein meal feed demand.”
‘Not widespread enough’
The comments tally with those of some other brokers that prices have for now have priced in bird flu concerns.
“Additional cases of bird flu continue to show up, but still are not widespread enough to cause significant demand concerns,” said broker CHS Hedging.
However, improved prospects for US spring sowings have also weighed on futures, causing some brokers to remain downbeat on corn futures nonetheless.
“The corn price in Chicago… faces pressure from several different sides at once – demand could be reduced by the outbreak of bird flu in the US, while the favourable weather conditions for planting in the Midwest are creating pressure on the supply side,” Commerzbank said.
‘Huge correction potential’
Still, the extent of the net short that hedge funds already have in corn futures and options – at 65,298 contracts, the highest in 15 months, according to regulatory data released late on Friday – may provoke some caution over further selling.
With speculators having a record short in Chicago wheat too, “if sentiment were to shift, this would generate huge correction potential” for grain prices.
Morgan Stanley stuck with forecasts for corn futures of averaging $3.90 a bushel this season and $4.25 a bushel in 2015-16.
“We see the near-term risks to corn prices as balanced,” Morgan Stanley said, citing on the price positive side “strong demand and the need to maintain acreage”.
(Source – http://www.agrimoney.com/news/dent-to-corn-prices-from-bird-flu-overdone—morgan-stanley–8259.html)