- Wednesday has, so far, bucked the trend of the last few days with markets displaying some slight tendencies to the upside. Are these the green shoots of recovery? Only time will tell.
- It has been reported that with better value corn prices, a number of US ethanol plants are being returned to production. Improved margins for processors as feedstock grains have reduced in price are the key reason cited for the dust sheets to be removed. Whether, or not, this move stimulates a recovery in corn prices, which have fallen for eight straight days, will likely be seen in coming days.
- Wheat levels have also seen a degree of recovery and the outcome of the latest Algerian tender will be viewed with interest. US soft red wheat would appear to be the best value, but Algeria’s alliance to and history with France may well impact their ultimate purchasing decision.
- The soybean complex has probably displayed the most negative picture in terms of price declines, assisted, no doubt, by the absence of key purchaser China due to their new year holiday shutdown. The impact of S American supplies onto global markets is having a perceived negative influence on pricing, but it should be remembered that until product is available and shipped, the influence is purely one of perception. The line up of vessels awaiting loading is reported to have now grown to such an extent that delays of up to 45 days can be expected, which can hardly be views as as positive factor likely to relieve tight supplies.
- In terms of weather issues, the ongoing very dry conditions in Argentina, which have extended now to nearly six weeks, are having a negative impact on both corn and soybean crops as stress levels have risen markedly. The crops, planted in some cases late and into overly wet seedbeds, are shallow rooted in many instances and, as such, are extremely vulnerable to the current dry conditions, more so than a crop planted under more favourable conditions with deeper and better developed root systems.
- Crop analyst, Michael Cordonnier, has reduced his estimate for Argentine soybean output to 50 million mt, a one million mt drop from previous, and well below the USDA’s latest 54 million mt forecast. His estimated corn output is 22.5 million mt, again well below the USDA’s February figure of 28 million mt.
- In Brazil conditions have turned wetter in the south and drier further north in something of a reversal of previous conditions. Mato Grosso state is drying fast in high temperatures and conditions are forecast to continue in this vein for the coming week, which will assist with harvest. Southern state, Parana, has had the benefit of good rains to relieve the recent dry conditions. However, it would appear that the persistent dry period has left soybean crops under stress.
- In conclusion, we can envisage a situation whereby a “double bottom” chart formation is created, in technical trade this can be a powerful support from which prices can rebound strongly. Given that, a) ethanol buyers will be in the market looking to secure supplies in order to lock in production margins, b) China will likely return from their holiday break keen to secure supplies at cheaper levels, and c) wheat tenders in the light of latest US soft red are offering some better value to buyers; a situation of buyer driven demand could provide some impetus towards higher levels.