We have seen a week marked, in the main, by markets trending higher as fundamentals point towards higher levels. The disruption to markets as the US was hit by hurricane Sandy was widespread with the New York Stock Exchange, ICE futures markets and New York subway system closing for a time. Markets initially sold off but recovered quickly as some “bargain hunting” and realisation of value returned to the market. We wish everyone caught up in the storm and its aftermath a safe and speedy return to normality.
The return of Egypt to the market saw sales made once again by France (120,000 mt), Russia (120,000 mt) and Romania (60,000 mt). We do not believe that the Russian sale should be seen as a return by them to the export market, rather an “allocation” of tonnage not taken up by Iraq a week earlier.
More important for coming months is the additional sale by France, which continues to see the EU balance sheet tighten still further in a season that is predicted to end with around three weeks of ending stock. Worryingly, this would leave the region below “pipeline” requirements and we anticipate the need for significant feed grain imports in the remaining months of the season.
We are already seeing EU feed manufacturers chasing offers of S American and Ukrainian corn in an effort to fill the looming void. Volume offers are thin on the ground and rapidly escalating in price, and beyond December offers are virtually non-existent at the moment. To add to the problems, we heard that a sale of French corn, for shipment in November, to Japan was concluded inn the week. It is believed to be in the order of 25,000 to 50,000 mt and a “first” for France. The sale, if confirmed, will add credence to our view that global consumers are finding increasing difficulty in sourcing feed grain supplies from traditional sources.
The latest US crop rating produced a surprise inasmuch as the winter wheat condition was reported at only 40% good to excellent. This is the lowest such rating in over 20 years and is a result of the summer long drought which continues to affect the Plains. The dry conditions are forecast to continue into the early winter and the potential outcome is that tillering of wheat crops will be reduced and will result in lower yield. This comes at a time when global stocks are running at uncomfortably low levels and southern hemisphere crops look unlikely to “refill the barn”. Reliance upon bumper northern hemisphere harvests to take on that mantle in around eight months time is now at an all time high.
Argentine crop output was downgraded in the week by as much as 20% for corn and 10% for soybeans following prolonged storms and continued rainfall. Parts of Argentina, which is the No 2 corn and No 3 soybean exporter, are reported to have received as much as a full years rainfall since September. Crop analyst Michael Cordonnier forecast an 80 million mt soybean crop in Brazil, which is a reduction from the earlier 81 to 83 million mt estimates. He also referred to “fields as much as two feet deep in water as far as the eye can see,” and the likely reduction in Argentine corn output that this would cause.
The worsening prospects for S American crops comes at a time when global stocks are tight to say the least and improved, if not record, crops were being predicted as the saviour of the situation. We appear to be moving away from “salvation” at present and we consequently reiterate our view that higher prices on all three key crops, soybeans, corn and wheat are likely in coming months.