The market started the day quietly with further long liquidation ahead of tomorrow’s USDA report. It would seem the bulls are tired and inclined to reduce their position size. Some 15% of the US corn crop and 4% of soybeans was harvested as of Sunday; however the view is that insufficient data is available to predict yield with any accuracy.

ABARES reported the Australian wheat crop at 22.5 mmt, lower than their previous 24.1 mmt and well below the USDA’s last 26 mmt. Dry conditions in W Australia are reducing yields by nearly 40%. However, export projections for 2012/13 remain upbeat based upon existing stocks remaining from the 2011/12 harvest.

Egypt once again stepped into their buying boots and picked up another 235,000 mt wheat, this time Russia was only offering 60,000 mt which was taken up by Egypt. In last week’s tender Russia offered 420,000 mt; are we at last seeing the beginning of the end of Russian exports? France picked up the largest tranche of business securing 120,000 mt. In total Egypt have made purchases of close to 1.5 million mt in the last month. The next tender will be watched with great interest to see if Russia make any price competitive offers of significance.

Finally, we received the following news item from Reuters today which is added in full. This could be either extremely significant or fizzle out to nothing …….

11 September 2012 18:48

According to a Reuters information, the European Commission might have drafted a new rule proposal, not official yet, which would limit by 2020 to 5% in energy the share of 1st generation biofuels, i.e based on agricultural feedstock used in food consumption. The draft also proposes to stop all forms of subsidies for biofuels after 2020. Finally, it defines new CO2 emission factors for several biofuel types, which would be unfavourable to biodiesel.

The current legislation gives a 10% incorporation mandate in energy for biofuels, whatever the feedstock. The Commission proposal to limit at 5% the share of 1st generation may thus strongly put this objective into question, by lack of alternatives, as 2d generation biofuels are not expected to be widely available by then.
The share of biofuels is considered at 4.7% in 2011, and is expected to reach 5% in 2012 (mostly first generation biofuels). If adopted, the new proposal would thus bring to a halt the biofuel market expansion, and most particularly biodiesel, which currently represents 70% of biofuels used in EU.

It is nevertheless better to remain cautious about the future of this proposal, which is for the time being not public. If it were to become official, it should in any case be adopted by the different EU governments and by the EU Parliament.