2013/14 world stocks/use ratios: wheat up, corn and soybean down
On April 9 (local), the US Department of Agriculture (USDA) released the monthly
World Agricultural Supply and Demand Estimates (WASDE) report. 2013/14
stocks/use estimate was raised for wheat, but lowered for corn and soybean.
Estimates for world stock/use for wheat were 26.6% (versus 26.1% in March),
corn 16.6% (16.8%) and soybeans 25.8% (26.2%). 2012/13 world stocks/use
estimates were wheat 26.0% (versus 25.9% in March), corn 15.5% (15.6%) and
soybean 22.4% (22.3%).
Corn gained price competitiveness; Soybean stocks/use ratio down
as crop conditions worsened
2013/14F wheat: Projected year-end stocks/use ratio was up 0.5%p MoM as the
beginning stocks rose on a slight decline in consumption in the EU and Ukraine a
year ago. 2013/14F global production forecast was lowered 0.2mn tonnes MoM
reflecting ~0.1mn tonne reductions in several countries.
2013/14F corn: Stocks/use ratio shed 0.2%p MoM as MoM growth in US export
demand, spurred by increased feed corn consumption on a more than 30% price
plunge from the 52-week peak. Global production outlook was raised 6.4mn tons
MoM thanks to Brazil’s better harvest in March and favorable production in South
Africa and Russia.
2013/14F soybean: Stocks/use ratio dropped 0.4%p MoM. Global production
estimate was lowered by 1.4mn tons MoM partly due to Brazil’s productivity drop
on hot and arid climate, which pushed the forecast down 1.0mn tonnes. 0.8mn
tonne drop from increased precipitation in India during the growing cycle.
Grain prices to increase marginally but F&B firms’ cost burden to be
offset by stronger KRW
As of April 10, the price for the nearby delivery month on CBOT and NYBOT
moved up 3.5% for wheat, 5.8% for corn, 4.6% for soybean and down 6.5% for raw
sugar MoM and all down DoD (0.3%, 0.6%, 0.7% and 0.1% in that order). In our
March 12 sector note, we forecast grain prices would increase marginally. In fact,
except for raw sugar, the prices rose slightly for all due to dry weather in South
America and concerns about supply reduction from the Ukraine. We expect grain
prices will continue to increase marginally by ~5%. Although weather conditions
may turn better, farmers are less willing to cultivate more crops as grain prices
have fallen for a long time. Even if grain prices climb marginally, F&B companies
should face a limited raw material cost burden given the recent KRW appreciation.
Furthermore, there may be another attempt to lift product prices after the local
elections in June, so we maintain Overweight on the F&B sector. Given the low
shipment base in 2013, F&B players should see OP trend upward YoY from 1Q14.
And as pricing power recovers, F&B shares should offer strong downside support.
Meanwhile, we believe concerns about Lotte Chilsung’s beer division are
overblown considering initial marketing costs are unlikely to exceed sales. We also
maintain BUY on KT&G and Nongshim. The former may lift prices in line with a
possible tobacco tax hike in 2H14, while the latter should emerge as the biggest
beneficiary of regained pricing power despite the share price rally.
*Source: Korea Investment & Securities Co.