Markets moved sharply higher in early trade as workers on the US east coast struggled to get to their desks in the aftermath of hurricane Sandy which had forced closure of some businesses and the subway in New York. Notable buyers were the funds this morning and consumers have struggled to procure physical grains from producers once again.

The move up is interesting today, particularly as month ends frequently see prices ease as positions are reduced in size to balance the books, generate cash and realign positions ahead of the new month. This has certainly not been the early tone in trade so far today.

Egypt returned to there market today and have secured 300,000 mt wheat for shipment late December and January with France and Russia each securing 120,000 mt and Romania picking up the additional 60,000 mt. Interestingly US soft red was the cheapest on an FOB basis losing out only on the freight advantage which France and Black Sea currently continue to maintain.

The Russian sale raised a few eyebrows given the tight domestic situation which they face and, despite their ongoing intervention sales, domestic prices continue to hit record levels impacting not only bread prices but also livestock feed. We believe the sales to be “allocation” of tonnages not taken up by Iraq a week ago rather than a sign that Russia is “back in the export market”.The French sale continues the trend which we have witnessed in recent times, and we maintain our view that with each sale made we will see the need for further grain imports particularly for livestock feed later in the season.

Further N African activity was seen with Tunisia purchasing 125,000 mt wheat from optional origins, these could possibly include Ukraine with their increase of 500,000 mt in the export quota to 5.5 million mt announced yesterday.

The EU granted a further 405,000 mt wheat export licences this week bringing the season total to 5.3 million mt, which is ahead of last year’s comparable figure of 5.0 million mt.

To “rub further salt into the wound”, Reuters announced the sale of French corn to Japan with 25,000 to 50,000 mt expected to load in the next week or so. This marks a “first” we believe and points to the high US price levels following the drought hit harvest this year, and the need for importers to source from alternative suppliers. Once again we reiterate the fact that we believe the EU can ill afford to export corn when it is already a net importer, and will likely see required import volumes grow this season after the  reduced harvest.

We see evidence of EU feed producers actively looking for FOB corn offers from S America and Ukraine; there appears to be an almost total absence of sellers particularly in deferred positions and those offers which do materialise are significantly dearer that they were a couple of weeks ago.

All in all, the picture appears to be pointing inexorably towards higher prices in coming weeks and months.

Once again we see the old “turnaround Tuesday” trick being pulled out of the hat as CBOT markets clawed back some of yesterday’s losses which were blamed on hurricane Sandy pressuring commodity sales to pay prospective equity margin calls.

The biggest news, hurricanes aside, comes from S America with headlines from Argentina proclaiming storms to have cut corn output by as much as 20% and soybeans by 10%. Parts of the Argentine corn belt are reported to have received as much as a full 12 months worth of rain since September. Argentina is the worlds No 2 corn and No 3 soybean supplier and much reliance is being placed upon decent crops this year to help restore some stocks to the increasingly tight global supply and demand picture.

The reports received some confirmation from noted crop analyst Michael Cordonnier forecasting an 80 million mt soybean crop in Brazil, which is lower than the 81 to 83 million forecast earlier and he added that the Argentine corn crop would be reduced following recent persistent rainfall which has left “fields two feet deep in water as far as the eye can see.”

The impact of the rainfall has left Argentine corn planting at 38% complete, which is behind the 58% planted at the same time last year. Regardless it would appear that S America may well switch significant corn acres to soybeans which can be planted later in the season than corn. Brazil’s soybean plantings are similarly behind in some regions with the south suffering from extreme wet weather and the north awaiting further rains to break the prolonged dry spell.

Closer to home the EU grain balance sheet is, as we have previously highlighted, extremely tight with both stocks and stocks/use ratios at historically low levels; projected stocks of some 22 days are less than “pipeline” requirement. Current export rates, particularly in wheat, exacerbate the problem placing a requirement for grain imports to meet livestock feed demand later in the season. These are likely to be in the form of corn from either Ukraine or Brazil, with projected volumes in the order of around 8 million mt required to only just maintain last years record low feed grain stocks. Given the tight global corn supply situation this is an additional demand which, when fully recognised, is likely to spark prices higher

US soybean sales to China were once again in the news with a further 8 to 10 cargoes reputedly sold. Again cash basis has firmed, particularly from an export perspective underlining the potential for stronger CBOT levels in coming weeks.

Today has been something of a “down” day with much of the selloff attributed to “Frankenstorm” Sandy the hurricane which is approaching the east coast of the USA. The storm is reputedly one of the largest in recent memory and, to give a perspective, if superimposed over the EU would cover the vast majority of it!

As a consequence, the NYSE LIFFE trading floor in New York and the ICE exchange in lower Manhattan have closed ahead of the storm making landfall. Markets have fallen as funds liquidate positions ahead of possible market closures Tuesday and to generate cash to meet potential margin requirements later in the week. Volumes have been thin and today’s fall has prompted further attention from Chinese soybean buyers looking for value on a scale down basis. On the other hand cash basis levels have firmed as growers hang on to their crops in store looking for higher prices in coming months.

We have heard today that there is a possibility that China may fall short of the USDA’s forecast soybean output by as much as 2.7 million mt which would add to their potential import requirements heaping further pressure on already stretched supplies.

On the wheat front continued wet conditions are hitting Argentine output and quality as fields flood and fungal disease spreads. Dry conditions are impacting newly sown Russian crops in southern regions, which is impacting emergence; this will leave the crop vulnerable to winter-kill much as is the case in parts of the US Plains region.

On balance, we see the dip as temporary and would expect a sharp recovery when “Sandy” retreats.

A week on from the much discussed Ukrainian wheat export ban it is now very much yesterday’s news although there has been little, if any, fresh news to supersede it. The ramifications of the ban are beginning to hit home and it would appear that there are a number of buyers, Egypt included, who will suffer from “force majeure” claims, as Ukraine exporters will be unable to fulfil contracts. The EU has condemned the action with the EU agriculture minister saying, “It will add unnecessary tension to international agricultural markets.” He further added that, “Those that will suffer most will be the world’s poorest.”

Past exports bans, such as that by Russia in 2010 after their devastating drought, have a history of pushing prices higher as buyers scramble to get cover in markets with restricted supplies. The current action by Ukraine could not come at a worse time when considered from the perspective of a tight global supply situation.

However, markets this week have not taken a dramatic turn to the upside as the ban was widely expected in one form or another, and as such, was already pretty much priced in.

In the US the weather continues to bring its forces to bear on crops as around half the Plains would seem about to enter the winter without being fully established as a result of dry conditions and consequently vulnerable to winterkill. Light rain and some snow is reaching some regions but the summer drought has still left lingering effects which may well be felt into next season. The long range weather outlook for the Plains issued by the National Weather Service predicts dry conditions to not only persist but to intensify and spread through to February next year.

At home in the UK, winter wheat seeding has been slowed by rain and wet conditions and the weather is threatening to cut acres. Unless conditions change rapidly there may well be a switch in acres to spring barley and a consequent reduction in wheat output for the 2013 harvest. Plantings in France are delayed but not to a significant level so far whilst German progress appears to be good.

Australian wheat growing conditions continue to deteriorate as cumulative rainfall through October in W Australia, New S Wales and Queensland sits at 0 to 40% of average. Talk of a 20 million mt crop persists, although exports are still envisaged in the region of 17 million mt thanks, in large part, to residual stock, which will be consumed to make up the shortfall.

In summary, the global wheat picture does not exude a healthy, rosy glow right now. The EU, Black Sea region, Australia and Argentina have all produced wheat under less than ideal conditions this season and this is clearly impacting upon available supplies amid strong demand fundamentals. The outlook for prices has to be bullish with recommendations staying the same; buy the dips when they appear and keep cover levels high.

The soybean market has gained ground over the week although we have seen some pressure on front month contracts due to fund re-balancing and rolling ahead of Nov ’12 contract expiry. Weekly soybean export sales were at the lower end of expectation but bring commitments for the season to a massive 25 million mt, which compares with 18.3 million mt at the same time last year.

Attention is now focussing on the November USDA report which is widely expected to show a further improvement in yield, although the export pace and voracious appetite of buyers, China in particular, will no doubt swallow any additional production without drawing breath. Typically, only small revisions are done with the November report. Instead, any significant changes to supply are dealt with on the January Crop Production Annual Report as the USDA has more data, including the Dec 1 Grain Stocks survey to reference.

The rise in values seen by mid-week, which amounts to some 85 cents above the previous week’s low, has triggered some profit taking ahead of the weekend. However, better levels have not managed to elicit any significant farm selling and cash basis remains firmer with both processor and Gulf bids higher than last week.

To wrap up, the fundamentals in the soybean market point to continued firm prices. In the UK we see the first break in prices coming in the May/Oct’13 position with any origin Hi-Pro soybean meal close to a £70/mt discount to the Nov ‘12/Apr ’13 position. On paper this looks like a good discount and obviously reflects the large anticipated S American crop which has some planting issues right now (wet in the south and dry in the north). Given our view on US supplies in a tight global market, the May/Oct price may well be tempting and an opportunity to “put a toe in the water” to start taking some cover further forward.

Today’s biggest news item comes from the International Grain Council who have cut global 2012/13 corn output by 3 million mt  to 830 million mt; the cut reflects reduced US and Ukraine output. At the same time they also cut 2012/13 global wheat output by 2 million mt to 655 million mt citing reduced output in the EU, Kazakhstan, Australia and Argentina as the main driver  of the reduction. Additionally the report reduced canola (rapeseed) prospects following reduced projections for the  Canadian crop; the report also talked of a decline of almost 25% in global end stocks.

At home, London wheat markets in both current crop and new crop reached contract highs (Nov ’12 and Nov ’13) today. We have seen the Nov ’13 contract start to trade in volume (in London terms) and open interest is approaching 2,000 lots and the new crop contract discount to old crop is closing as concerns are beginning to emerge over northern European winter wheat sowing and establishment in ongoing wet weather conditions.

We still see a few UK fields of wheat standing awaiting harvest in ongoing wet conditions, and many fields which have been harvested still have straw un-baled let alone attracting the attention of pre-sowing cultivations. Delays in sowing, as we all know, result in yield loss, and a delay in sowing until spring can often result in major crop re-evaluation. This season’s out-turn is not a great platform from which to see a poor start to the new crop outlook.

The EU has granted wheat export licenses for 242,000 mt this week bringing the season total to 4.9 million mt.

One has to smile when, within the space of two hours, we get diametrically opposed statements from “officials”; this time Ukraine where Reuters reported at 11:30 today  “There will be a full ban from Nov. 15. There will be a government order about this. We are not playing games here. We do not have any other option,” Farm Minister Mykola Prysyazhnyuk told Reuters. Within a very short period of time we hear that the Prime Minister says, “No!” The key to keep in mind is that the 5 million mt cap on exports is in place and the possibility of any export volume over and above that now seems extremely remote indeed.

A major topic of discussion arising from the export limit and whether or not it is “official” is the ability of traders to declare force majeure on contract tonnages over and above the “cap”. A formal ban and a set date will make it abundantly clear and buyers will have to find alternative supplies at market price with no recourse to sellers for any price differential. It is likely that the world’s largest buyer, Egypt, will be caught in this scenario as they have tonnages purchase beyond the 15 November deadline.

The key to prices going forward now is not so much related to the Black Sea region but more to what output will we see from Australia and Argentina and at what price will we see the US become a willing exporter.

Both corn and soybean basis levels remained firm throughout the day and we saw evidence of further soybean export sales by the US with another 100,000 mt plus sale announced today to an “unknown” destination. Even after recent price rises we see no evidence of the much needed price rationing kicking in and slowing the pace of demand, which can only exacerbate problems later in the season.

Today has been marked by a lack of news which has resulted in markets trading into negative territory throughout most of the day although things have recovered towards the close.

Consequently, we have focussed upon global wheat markets for commentary this evening. The Ukrainian export ban and lack of available Russian grains for export keeps the Black Sea region out of the market for the remainder of this season. Added to this, the pace of EU exports, mainly France, will result in an historically tight stock to use ratio at the end of the season and points very strongly to the need for the region to ration. An estimated three and a half weeks usage at the end of the season is far too tight for comfort, and the prospect of corn imports from the US and Brazil (now that the EU has approved GMO events last weekend) looms large and potentially very real.

The Australian and Argentine crop prospects remain under pressure as we have mentioned previously which adds to global trade tightness. It would appear that a cumulative 30 million mt has “disappeared” from global tradable stocks compared with last year as a consequence of heat, drought or flood depending upon location.

US FOB prices are slowly becoming more competitive, and we believe that the next time we see Egypt in the market, and they have been absent for the last 21 days, it is very possible that US grains will feature for the first time this season. After the US there are few origins left to fulfill the requirements of importing nations.

Little wonder then that we continue to be friendly to the wheat market for the remainder of this season and recommend cover be maintained at high levels through to new crop.

The day dawned firmer today as US markets opened modestly higher after seemingly reversing recent declines last week. The big question being asked by many is, “have we seen the season and harvest lows?” There is a good case to suggest the answer is yes given the firm US cash markets with basis premiums at, or close to, record levels.

Nearer home we see Syria purchasing 100,000 mt of wheat from the Black Sea, some of the few remaining cargoes available for nearby delivery and possibly one of the few origins prepared to supply given the difficulty Syria will be experiencing in the finance world right now.

In Russia we continue to hear of opposition to any ban on grain shipments but domestic prices will ensure that any offers will be uncompetitive if made at all. Domestic prices continue to rise despite sales of intervention grain and we question what action will be taken in order to control food price inflation in coming weeks and months. To add to the nation’s woes, conditions remain particularly dry in the south and also in Ukraine.

Last week we were all concerned over the USDA’s October report which saw a sharp jump in prices followed swiftly by further fund selling which pushed prices lower still, despite the bullishness of the report – particularly in corn and soybeans. The power of a protracted fund selloff has been amply demonstrated these last few weeks, however it now seems that we may well have reached the end of the liquidation. Wednesday saw little, if any, fund selling and Thursday’s picture was characterised by the speculators once again adding to long positions and the market saw a lift as a consequence. Both London and Paris markets benefitted with decent gains seen for the first time in more than two weeks.

News on Friday that Ukraine has banned wheat exports with effect from November 15 has added to the lift in markets with Nov ’12 London wheat gaining £2.50/mt in early trade with sellers reluctant to offer volumes in an already thin market. Front month Paris wheat also made strong gains in early trade, rising some €3.75 on the back of the announcement. It is probably fair to say that the news does not come as a huge surprise because grain exports and wheat in particular had already been capped following a poor growing season, which has left the region some 28% behind last year in terms of wheat output which means the gains made after the announcement may be more emotional and short lived. The wheat export cap at 5 million mt was put in place to preserve domestic stock levels and we have seen an acceleration of export pace as traders rushed to beat the inevitable clampdown. There has been no mention of restrictions on other crops, corn and barley, which we believe to be because of their lower degree of sensitivity and importance to the region.

So far, we have seen no reaction from neighbouring Russia who suffered the same poor growing season and have been experiencing rises in domestic grain and flour prices to record levels that have prompted intervention sales in an effort to stem the upward price movement. However, similar to the Ukraine, Russian wheat has been priced out of the market for the past few weeks which has already limited sales and acted like a de facto ban.

Looking forward, we believe that EU wheat export levels will have to slow if balance sheets are to be maintained at adequate levels. Failure to see this could well result in a larger corn import programme (where from?) in order to fully meet demand.

In the wider world, Australian wheat looks set for a downgrade in output from the current USDA level of 23 million mt due to on-going dry conditions. A widely discussed output of 20 million mt is becoming the “norm” right now, which would likely impact the USDA’s export figure of 18 million mt on a tonne for tonne basis. In summary, the world continues to see adverse news as far as wheat is concerned and we continue to recommend that adequate cover be in place, at least for this season.

Soybean markets, like wheat and corn, have also suffered fund liquidation pressures and the related decline in price. Nov ’12 soybeans have lost over $3.00/bu but now seem to have found a degree of support and are currently trading $0.60 above the recent lows as buyers find value at these lower levels. The pace of export commitments from the US, particularly to China, have been particularly interesting with an almost unheard of proportion of the total USDA annual export estimate committed within two months of the season starting.

We continue to believe that global supplies remain tight and demand shows no sign of easing – yet! Consequently, the logical conclusion would be that prices will rise to force demand rationing, which begs the question, “Have we just seen the season low?” Our advice would be to ensure cover is in place through to Q1 and look for value in Q2 & Q3 when S American supplies begin to make their impact felt on prices.

US markets followed yesterday’s bounce this morning and have continued throughout the day lifting EU markets at the same time. Positive economic data from both China and the US have undoubtedly assisted; the prospects of a “hard landing” for the Chinese appear more remote as their GDP in Q3 hit 7.4% (massive by western measures!), and US housing data was at a four year high.

Global corn values have risen markedly as Brazil’s offerings in the export market look remarkably thin post-December. Ukraine’s offerings are becoming more expensive and it feels as if volumes are becoming somewhat restricted which could well point towards the more expensive US as a supplier in coming months. The key for importers going forward will be finding willing sellers – and this may become more difficult given the way we see global supplies.

Australian wheat has seen some price escalation on the back of potentially restricted availability in the dry conditions they are currently experiencing.

Strategie Grains figures for the EU grain crop are reduced mom by 1 million mt to 269.5 million mt, of which soft wheat account for 123 million mt, being a reduction of 700,000 mt. EU wheat export licences for the week amounted to 493,000 mt bringing then season total to 4.7 million mt.

We are picking up news of soybean planting delays in parts of Brazil which, if confirmed, will result in harvest delays and questions over the follow on “Safrinha” crops which characterise S American production. This key element of Brazilian production will need to be monitored closely as any change to normal patterns could well impact global supplies for a further season.

Today’s price action in the US and EU markets has raised our level of optimism although we need to see follow through into the weekend close if this outlook is to be confirmed. The lack of fund selling both yesterday and today is encouraging this outlook right now.