New York, 31 March 2010

Morgan Stanley: Planting intentions largely in line with expectations, with farmers aiming to plant 88.8 mln acres of corn and 78.6 mln acres of soybeans this spring. USDA will release its final acreage estimates in the June 30th Acreage report. With the corn planting season typically starting in April and ending in May, and soybean planting season extending into June, the market will need to bid prices accordingly to ensure that the proper acres are planted.

With 88.8 mln corn acres planted, and a trend yield of 160.0 bu/acre, we highlight that S/U will remain unchanged at a still tight 13.4%. With 78.6 mln bean acres and assuming a trend yield 42.5 bu/acre, S/U remain largely unchanged at 5.3% in MY10/11. We prefer corn over beans on the recent performance of beans owing to South American concerns, overdone in our view.

Quarterly grain stocks were generally bearish as both corn and soybean March 1 stocks came in higher than expected. The USDA reported 7.69 bln bu of corn (vs. expectations of 7.51 bln bu) and 1.27 bln bu of beans (vs. expectations of 1.21 bln bu). Our analysis shows that the implied feed/residual usage for corn MYTD is now in line with USDA's current estimate.While we have heard anecdotal stories regarding corn quality issues, we have yet to see anything quantifiable regarding increased usage by livestock feeders and ethanol plants. Quality issues should support feed demand, ceteris paribus, and our bias is that estimates will grind higher through the year. In the near term, however, this report is bearish corn, and bullish ethanol producer and livestock feeder margins.

Soybean stocks came in higher than expected with some in the market expecting a reduction in stocks to account for an "overstated" soybean production estimate by the USDA. In our view, this adds a comfortable buffer for US bean stocks and, barring weather problems in South America, will pressure old-crop bean prices for the remainder of the marketing year.

Ends --

Hussein Allidina  +1 (1)212 761 4150  Morgan Stanley & Co. Incorporated

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