- WEEKLY OVERVIEW
- We return from holiday to what feels like a different country, warm (or more accurately, hot) weather, and sunshine rather than the dreary, cold and wet conditions that were prevailing some weeks ago. Consequently there is somewhat more optimism over crop development albeit the damage done in the early season cannot be undone, and harvest will doubtless be later than average.
- From a more global perspective, Egypt’s President Mohammed Morsi was ousted by the military leaving concern over the future leadership and direction of the country. In recent days neighbouring Arab nations have granted aid and loans amounting to $12 billion, which should prove sufficient to permit an on-going wheat import programme. Somewhat cynically we might suggest that the “Arab Spring” which arose as a result of high bread prices in Egypt, and spread across much of the region may well be in the back of the philanthropist’s mind, and that a repetition is the last thing they want. Maybe, on the other hand, that is just plain uncharitable!
- Overall market direction across the last week or so has appeared somewhat bullish, triggered by suggestions of hot and dry conditions across key US cropping regions coupled with the continued tightness in old crop soybean and corn where cash bids (over futures) persist at high and even record levels. Added to this it would seem that funds were simply “too short”, and needed to address their positions. Our understanding is that soil and sub-soil moisture levels are far from critical and that temperatures are not threatening, which leaves crops to develop in pretty much favourable conditions. As one commentator said earlier this week, “The bulls need a weather problem. It’s just about that simple.”
- We believe yesterday’s WASDE report to be slightly bearish as far as raw data for soybeans and corn are concerned, principally due to the increase in new crop year-end stocks. Wheat data was less so, with probably more questions than answers emanating from the report. The good news of an increase of 2 million mt in world 2013/14 production (US, EU and Australia) was tempered by China’s jump in feed consumption of 5 million mt in both 2012/13 and 2013/14, and largely accounts for the reduction month on month, of global end stocks by 9 million mt. The questions in the wheat numbers lie in the output levels in India, Pakistan and Russia, which many believe to be overstated by the USDA, no doubt time will eventually tell who is correct.
- To summarise the report, global wheat has moved away from the previously predicted stock build into a stock reduction position, which (if output in India, Pakistan and Russia fails to meet USDA forecasts) could accelerate. That said, the soybean and corn S&Ds look bearish, with 2013/14 global corn output over 100 million mt greater than the previous year and 2013/14 year end stocks over 27 million mt above 2012/13, there is scope for prices to decline significantly. If this materialises the likelihood is that there will be a knock on effect on wheat prices despite the differing S&D fundamentals.
- In conclusion, we continue to favour a cautiously bearish position and believe there will be better opportunities for consumers to take cover on new crop requirements.