New York, 25 March 2011:

Morgan Stanley believe today's USDA announcement of 1.25 mln MT of corn sold to "unknown" export partners represents Chinese buying. After a week of unconfirmed speculation over Chinese purchases of US corn, and despite denials by Sinograin, Morgan Stanley believe that today's announcement provides confirmation, matching our expectations of size and timing.

"The USDA's US 2010/11 export forecast is likely understated. Today's announcement of 1 mln MT of old crop sales, if our inclination proves correct, would put 10/11 US export sales to China at 1.3 mln MT, higher than the 1 mln MT expected by the USDA. Even assuming China buys no more US corn this year, today's news suggests upside of over 10 mln bu to the current US export forecast of 1.950 bln bu - we currently see 2010/11 exports at 2 bln bu. Given that the US attache has already raised its expectations of Chinese imports to 1.5 mln MT, we believe today's news will prompt the USDA to follow suit in the next WASDE.

"We have stated consistently over the past months that China may not be as adequately supplied as they claim, echoing reports from privates within the country which see ending stocks as much as 30 mln MT below the USDA's current expectations of 60.1 mln MT," according to Hussein Allidina of Morgan Stanley.

"While the bulk of the sales are for delivery in the 2010/11 marketing year, bullish for near-dated prices, we still prefer being long Dec 11 corn as any tightness in the US balance only heightens the need for corn to gain over 3 mln additional US acres this spring."

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