The market opened quietly awaiting  the outcome of talks in Russia over grain stocks and the future of exports. The outcome of the meeting was confirmation of their reduced output but the much-expected limits on exports was not forthcoming. A worthwhile point to note was that Deputy Prime Minister, Arkady Dvorkovich, said, “As long as I am in charge of the sector, I will be against export restrictions.” A cynic might view this as an opportunity to U-turn should he be removed from office at some point in the future! The agriculture minister estimated an exportable surplus of grains in the range of 10 – 14 mmt, stating that domestic requirements would be fully met despite the lack of restrictions.

Despite the announcement it seems hard to contemplate a situation where Russia, and in turn Ukraine, will not intervene at some future point to protect their dwindling stockpile and avoid becoming an importer later this season.

The CBOT wheat market dipped on the news and has fallen back again this afternoon; in total some $0.20.bu has come off values basis Dec ’12 futures. It must be remembered that markets have not only the lack of export restrictions to handle today but also a month end which traditionally sees short term trend reversal as funds withdraw cash to pay out investors, rebalancing positions; finally there is an element of “risk-off” as the US heads into its extended Labor Day weekend break. We would not be surprised to see some of the dip recovered when trading resumes on Tuesday, nothing has really changed – maybe timing needs to be tweaked.

DEFRA has reported end June grain stocks in the UK, and as expected, levels are lower than in previous years. Add to this the harvest delays and we can clearly see the supply issues which have been experienced are understandable if not welcome.

Falling yields in Russia and Ukraine have led to growers withholding their reduced output back awaiting improved prices before committing to sales. Whilst prices may have risen some 47% in Chicago, the reality in Russia for growers is merely 25% and Ukraine is worse at 9% higher. Little wonder then that growers await better levels before making sales!

The weather is forecast to improve somewhat over the weekend, hopefully allowing growers to get back into fields and make some serious inroads into harvest and alleviate some of the supply issues we have been experiencing.

With the US markets closed today marking the Labor Day holiday it felt like a “non-day” would be on the cards. On a slow news day what do we discuss? Well, according to the Met Office the summer of 2012 has been the wettest for 100 years, as if we needed to be told that! On average the Uk received 366.8 mm rainfall during the summer months of June, July and August which compares with a more normal figure of 241 mm. In addition we are told that the summer was likely to be one of the most dull on record with 399 hours of sunshine, the worst sine 1980.

Clearly a slow news day! However, the wet and dull weather have conspired to produce a delayed harvest with resultant harvested wheat yielding poorly as previously mentioned. Specific weights are the poorest since 1977 according to the HGCA, and considering these figures are based on early (in relative terms) harvested grains in the south and contain a large proportion of milling quality wheat the final results are likely to deteriorate further.

Finally we saw this weekend become a major one for export tenders with close to one million tonnes of deals done. Egypt and Saudi Arabia were key buyers with a host of sellers featuring including Australia, EU and North and South America. The Black Sea region was not one of the key sellers on this occasion, having filled Egypt’s earlier 355,000 mt order.

Some view the overall Russian sales volumes to date as reflecting the exploitation of current availability, poor harvest prospects lead many to conclude that the exportable surplus will soon be committed, possibly as soon as the end of October, and that particular source of supply closing the doors. Should that become the case tenders will likely switch to EU and US origins with their higher freight costs.

LIFFE Closes wc 31 Aug 12 – Excel Spreadsheet

News today includes a further update from SovEcon reporting the Russian 2012 wheat crop at 38 mmt down from their last estimated figure of 39 mmt. In addition the Ukraine 2012/13 grain export figure is reduced to 20 mmt down from 22.8 mmt yoy. These figures appear the day before the Russian meeting to discuss grain output, exports and potentially the future of the region’s exports for the remainder of the season. A Russian industry leader has emphatically suggested that there will be no intervention in the free market; we remain unconvinced at this point in time. It seems inconceivable that Russia, and in turn Ukraine, will permit free exports until such time as the stock situation requires imports from either EU or US origins to supply the already high priced domestic flour and wheat markets. We will be watching developments closely tomorrow.

According to ADAS the UK harvest has reached midway and yield figures vary hugely as predicted. Low specific weights appear to be the key talking point although Hagberg levels are also lower than normal.

The “saviour” of the global soybean and corn crop deficit emanating from the poor US harvest which is expected to emerge from Brazil’s next crop may be blighted by a particularly mild El Niño weather pattern. However, at least it does appear that it WILL be an El Niño rather than another La El Niña with its predominant dry conditions. It is far too early to make a definitive call on what may or may not emanate from Brazil next season, although our conversations with growers in the region suggest early and large plantings are favoured with the opportunity to double crop and capture high priced markets whilst opportunities remain.

Overnight we received an update on US soybean export levels which have persisted at record pace, exceeding even last years record levels. This has resulted in stronger Gulf basis levels despite record prices achieved over the last couple of months. Current export volumes are 38% above the previous record of 2000/1; the US soybean balance sheet is likely to take a hit when next published by the USDA in their September report.

The principal destination for the most recent export shipments is China, cumulative volumes exceed each month last year with an anticipated total in excess of 59 mmt for the marketing year. The message is clear, currently price is not creating the required rationing necessary to preserve global stock levels, coupled with potentially disappointing US yield it would lead us to conclude that we will have to see further price increases before to long.