2006/07 fundamental analysis summary

14 Nov '06

3 min read

The November 9 USDA World Agricultural Supply/Demand Estimates (WASDE) report framed the supply and demand conditions as ample U.S. supplies and slightly tighter world situation.

The bottom line suggests no change in 2006/07 U.S. stocks-to-use relative to the previous marketing year.

The change in U.S. stocks-to-use from year to year generally moves in the opposite direction of U.S. prices.

This provides no supply/demand rationale for a Dec06 futures trading range much different than Dec 05's trading range (which peaked in the upper 50 cent range, before trading down to 49-50 cents).

The USDA numbers for the foreign and world situation still project a decrease in 2006/07 world stocks-to-use, but only by around 4 percent down to 43.2 percent.

Historically, such a move implies only mild support for the A-index of world prices.

This suggests a decreased chance of seeing the A-index reach the 66-67 cent level where the LDP begins to erode in value.

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