Today has been VERY interesting in a number of ways! That’s always a good opener to grab attention and make sure that everything is read!

Despite little in the way of fresh news it would seem that fund liquidation has dried up, for now at least. Watching CBOT markets like a hawk today has been insightful, they have declined to a level and rebounded higher on a number of occasions, albeit a conservative rebound, but have stayed for the most part in the green, or positive territory. The “gap’ on the Nov ’12 soybean chart is still not yet filled and the bears are struggling to get there right now. If this price action is repeated tomorrow we may well be confident in saying,  “the lows are in.”

Sentiment today was underpinned by Moody’s confirming Spain’s credit rating at Baa3 despite their caveat of a negative outlook. The rating was supported by the ECB’s willingness to purchase Spanish government bonds.

Anecdotal evidence of fund buying in corn, wheat and soybeans today has filtered our way although volumes have been on the light side. Cash basis levels in the US remain very firm which is indicative of tight supply into a strong demand.

Japan has reportedly purchased US corn this week as the outlook for Brazilian availability continues to decline with loading delays. Given our opinion on tight US supplies, this will only tighten them further and, when prices break to the upside, will push them further still.

Algeria has been reported to have purchased 400,000 mt wheat from unspecified sources for Dec ’12 shipment. We understand the French offers to be too expensive which points to Argentina as the likely origin; given their export commitments on barley and corn over the same time frame we question the sense in making the sale, at discount prices, when latent demand on the doorstep already exists! It is indeed a strange world in which we live!

Egypt has stated it plans on importing up to 4.8 million mt wheat having committed to 2.3 million mt so far this season. It would seem that the US is a likely origin in coming tenders as the spread between US and other origins continues to narrow.

Finally, Farmer’s Weekly have published a statement indicating that bio-ethanol producer, Ensus, is accepting wheat down to 60kg/hl this season. Last year it took grain down to 68 kg/hl and plans to review the situation once it has evaluated extraction rates from lower specific weight grains. The plant currently processes 75,000 mt a month and average bushel weights are 68 kg/hl, the expectation is that intakes will rise to 90,000 mt/month by the end of the year.

Tuesday started in fine “turnaround” style in the CBOT markets with early gains across the markets only to be turned around into negative territory by the close of play. This, in turn, pressured markets this side of the pond leaving both London and Paris wheat markets lingering in a long term rangebound limbo.

US markets continued their selloff with a degree of blame being loaded onto the shoulders of new “Dodd-Frank” trading reforms which are aimed at tightening the rules affecting investors with swap positions by requiring them to hold collateral against both sides of the swaps which have previously been deemed to be effectively hedged against each other. Deadlines have forced “weak” speculators to liquidate at a time when net long positions in corn and soybean futures and options are at relatively high levels; thus exacerbating the effect of liquidations driving markets lower.

Interestingly, Nov ’12 soybeans rallied off a technical level created by a long standing “chart gap” today implying that all is not yet lost to the bears. Time will tell.

Early reports of US winter wheat conditions are showing some concern over emergence; seemingly the summer drought has not yet rolled over and died! More moisture is still needed if crop condition is to improve and go into winter dormancy in good condition.

Australian wheat growing regions are forecast to receive little, if any, rainfall in the next fortnight; if this becomes the case yield losses will be on the cards making USDA forecasts of 23 million mt output look high. Sub 20 million mt levels are being discussed quite widely.

Finally, the NFU and HGCA have almost agreed upon the UK wheat output at around 13.25 million mt. Projected import levels of maybe 2 million mt and exports of a top figure of  1 million mt leave the UK way behind recent self-sufficiency levels.

CBOT markets have been on the defensive throughout most of today as fund selling has dominated not only grains and oilseeds but also metals and energies. It has been interesting to note the scale down buying which has emerged from commercials (aka consumers) as they see value emerging at these lower levels.

We see this market as more technical than fundamental right now as Nov ’12 futures contracts approach first notice day in a couple of weeks. How much lower can we go? Not an easy question to answer, but we seem to be close to technical support levels on the charts.

We would expect to see seasonal lows made in the soy complex very soon and still believe that the grain fundamentals are bullish. Until the funds pick up on this news and stop selling we are destined for lower levels. Fundamentals remain unchanged, global supplies of soybeans, corn and wheat are all tighter than is truly comfortable and the current selloff is both stimulating demand, which the S&D can ill afford, and creating consumer opportunity.

The USDA’s October report, issued yesterday, has given way to speculation on the November report even before the ink has dried! The much-awaited report was construed as bullish and markets reacted accordingly with sharp gains across the soy complex, corn and wheat.

The trade received an unexpected surprise with a cut in 2011/12 world corn production and stocks although the 2012 corn and soybean production estimates were close to expected levels although harvested acres for both crops were increased as expected.

The much-debated US corn yield figure was reduced marginally to 122.0 bu/acre from 122.8 and soybean yield increased, as expected, to 37.8 bu/acre from 35.3. However, as is so often the case, as you dig deeper into the report all is not quite as we may be persuaded to believe!

As Rob Fisher, Managing Director of IAG, pointed out so eloquently at the seminar which preceded the Hull Corn & Feed Trade Association Dinner in Hull yesterday, the incredibly tight global S&D position is predicated upon some massive production increases in both Brazil & Argentina. The figures call for a 22% increase in Brazilian output and a 34% increase in Argentine output. These sorts of increases seem to be disproportionate and we ask the question, “Were these numbers inserted to balance the books?”

Clearly, we do not have the answer, but believe that demand rationing through higher prices is essential if supplies are to last throughout the season. Consequently our view remains bullish going forward and gaps in cover should be filled even though current prices may seem to be unpalatable right now.

In corn, which has a direct correlation with wheat, we would expect the next report, (yes, we are guilty of looking at that one before the ink has dried too!) in November, to show further declines in output as all the acres chopped for forage are currently counted as “crop”. Consequently, as the true crop is harvested and recorded we would expect to see overall output lower than currently stated. In past years this has been a feature more often than not and we see no reason for this to change this year.

We therefore hold a similar view on corn as we do on the soy complex, that being bullish.

World wheat stocks were reduced from a month ago by nearly 4 million mt, which was close to expectations and output reduced by 5.7 million mt. However, the greater impact upon prices will likely come from the larger market place and international trade. We know that Russia is pretty much done in terms of exports this season and seemingly there is little Ukraine material available for export. France has picked up the lion’s share of recent Egyptian tenders and will soon deplete its exportable stock leaving the US as the major supplier to importing nations.
Australian weather shows little sign of improvement and the prospect of a sub 20 million mt crop is not too far away; this will clearly impact their export capability further pressuring prices going forward.

As mentioned earlier, we expect the major price driver to come from corn prices and our outlook is bullish. We would recommend cover to be in place through to the end of this crop year as we expect another tight end of season as far as stocks are concerned.

The USDA’s long awaited figures have finally been published today and the report was generally received as bullish with CBOT grain and soy markets sharply higher.

The trade received an unexpected surprise with a cut in 2011/12 world corn production and stocks, although 2012 corn and soybean production estimates were close to expected levels although acres for both crops were increased as expected.

The numbers were as follows:
US 2012 wheat ending stocks @ 654 miobus, above estimates of 630, and below 698 mom.
World 12/13 wheat ending stocks @ 173 M t, above estimates of 172.813, and below 176.71 mom.

US 2012 corn crop @ 10.706 biobus, above estimates of 10.601, and below 10.727 mom.
US 2012 corn yield @ 122 bpa, below estimates of 122.884, and below 122.8 mom.
US corn 12/13 ending stocks @ 619 miobus, below estimates of 648, and below 733 mom.
World 12/13 corn ending stocks @ 117.27 M t, below estimates of 121.322, and below 123.95 mom.

US 2012 soy crop @ 2.86 biobus, above estimates of 2.764, and above 2.634 mom.
US 2012 soy yield @ 37.8 bpa, above estimates of 37.006, and above 35.3 mom
US soy 12/13 ending stocks @ 130 miobus, below estimates of 134, and above 115 mom.
World 12/13 soy ending stocks @ 57.56 M t, above estimates of 53.301, and above 53.1 mom.

Moving forward we would expect the November report to show further declines in corn production as all of the acres chopped for silage are counted as “crop” and yield continues to decline. We recall that in the past crops continue to get smaller more often than not, and we expect this to be a feature through to final output figures are released in January.

The USDA reported US crop progress last night as follows:

Corn crop 69% harvested which is below estimates of 70% but up from 29% yoy, and above the 5 year average of 28%.
Soy crop is 58% harvested which is below estimates of 61% but up from 42% yoy, and above the 5 year average of 40%.
Winter wheat crop is 57% planted which is up from 40% wow and 53% yoy, but below the 5 year average of 59%.

France’s AgriMer estimates French 2012/13 wheat end stocks at 1.8 million mt which is down 0.6 million mt mom which would be the lowest level in 13 years. A key driver of their figure is the increased estimate of exports outside the EU at 9 million mt, an increase of 500,000 mt mom.

The NFU have released their estimate of UK wheat production at 13.25 million mt, the lowest since 2007 when  the planted acreage was 1.8 million ha or 10% lower than this year. The yield figure is pegged at 6.7 mt/ha, the lowest since 1988.

Oil World, ahead of tomorrow’s USDA report, claim US soybean stocks are set for a sharp drop despite hopes for improved production. Improved output at 2..786 billion bu, which is in line with estimates, will not make up for the strength of demand being shown by importers and China in particular, they said. Reduced S American output last year following dry growing conditions has emphasised the draw down on US supplies. In addition, the delay in Brazilian rainfall which is delaying crop planting lessens the prospect of an early harvest which would be needed to ease global supply tightness.

CBOT markets has been in “position squaring” mode ahead of tomorrows report. Traders are talking of preferring to buy into any soybean rally if it materialises rather than being caught by bearish figures. The resulting decline in soybean prices has seen China displaying further buying interest even after committing to 120,000 mt on Monday; clear evidence of “picking value.” Despite anticipation of a bigger crop we must see demand rationing to preserve some crop into the second half of the marketing year.

Tomorrow is going to be very interesting. Buckle up and enjoy the ride!

The US markets opened in good old traditional “turnaround” style as befits a Tuesday. However gains have been limited and the market feels as if it is struggling to hold onto gains as bearish traders cap rallies by selling strength.

We feel that it is possible we may yet get a bullish surprise, particularly on corn, which will impact wheat by association, and higher priced corn will lead to feeding of wheat. Russian domestic grain prices continue to hit record highs and EU prices are rising as supplies start to tighten.

Without doubt there is a massive emphasis being placed upon sizeable S American crops to relieve the tight global S&D position; we question if this is possible, and if not – where do prices go next?

Tonight will be a brief report as I am travelling and we are seeing a market which is lacklustre in advance of Thursday’s report. There is a huge divergence of opinion over the size of the US corn crop despite the fact that it is well harvested right now. Informa’s figure of 11.2 billion bu is countered by Cordonnier at 1.234 billion bu lower (31.3 million mt lower). This illustrates the lack of consensus and possibility of a surprise on Thursday.

Market estimates are as follows:
Yield – average, 122.884 bushels per acre; highest, 127.0 bushels per acre; lowest, 120.0 bushels per acre
Harvested area – average, 86.136m acres; highest, 87.5m acres; lowest, 83.0m acres
Harvest – average, 10.601bn bushels; highest, 11.194bn bushels; lowest, 9.960bn bushels
Current USDA figures – yield, 122.8 bushels per acre; harvested area, 87.4m acres; harvest, 10.727bn bushels

Harvested area alone has a massive variation of 4.5 million acres – little surprise at market reaction in advance of official USDA numbers, the big question being, “will the market believe them?”

UK wheat imports continue to look as if they will reach over 2 million mt as quality grains are being sourced from overseas to replace the lower quality domestic supplies. France, germany and Baltic States all feature as potential sources, and the US does not look outrageously priced today. It will not take much to put the US in the right price bracket and enable supplies to reach our shores at some time this season.

We anticipate choppy price action this week in advance of the crop report; direction will be dictated after publication and jockeying for position will be the order of the day until then.

The NYSE LIFFE exchange has experienced further difficulties with a total of three periods this week when trading had to be halted due to “technical problems”.

CBOT markets appear to have lost some of their “mojo” after last week’s stocks report, which gave them a lift. Wheat has continued its range-bound and sideways track that has been in place since late July; support around $8.55 and resistance at $9.25 seem destined to contain this market at the present time.

Corn, which has been in decline throughout September, found a foothold from the stocks report and has traded off its low since publication. Opinion as to ultimate yield levels is well divided either side of the USDA’s last reported figures. We are starting to get private forecasters opinions as to the USDA’s October figure but ultimately the market will trade whatever figure is provided in the official report.

Soybeans, like corn, have been in a downtrend through the month of September as expectation of better than previously estimated yield pervade the market. However, the publication by StatsCan of their canola output estimate at 2 million mt less than previously forecast and below demand levels, gave the market a timely boost this week. The decline is attributed to heat and dryness through late August and September and sees a month on month decline across all crops.

The forecast low canola output and low carryover stock position leaves Canada with an estimated million mt plus deficit. With prices having followed soybeans lower to seven-month lows, consumption is being stimulated rather than rationed. The tight global oilseed position is seemingly receiving no respite and we face a near record low global canola stocks to use ratio. Clearly, as with soybeans, demand rationing will have to come into play and prices feel as if we have either seen, or are about to see, a seasonal low buying opportunity. Interestingly, Canadian feed grains production is estimated at more than a million mt less than thought a month ago. The upshot of this being that Canada will either be a net importer of corn or feed more wheat; adding further pressure to already tight global supply and demand patterns.

One fact remains crystal clear right now, and that is the pace of the US soybean and corn harvest. As of last weekend soybeans were 41% harvested, well above the five-year average of 19%. Corn was 54% harvested, again like soybeans, above the five-year 20% average. Weather continues to be friendly and support the on-going pace, which makes an early completion look highly likely right now. The upside is that we will have a good handle on actual output somewhat earlier than in previous seasons and the likely direction of prices may become slightly easier to assess. Meanwhile, in the US physical corn and soybean markets, bidding is strong with few sellers despite being in the middle of harvest which is helping to keep cash basis above seasonal norms.

US soybean exports were, once again, at high levels as this week’s reported figure was 1.3 million mt, bringing this year’s commitment to 23.5 million mt. This figure represents a staggering 82% of the USDA’s forecast annual exports of 28.7 million mt. Clearly, rationing is not yet being featured! Next week’s figures are expected to show little change as China would appear to have been continuing to take advantage of the pullback in prices to secure additional tonnage.

In our view price risk remains to the upside as current pricing is reflecting a bearish crop report. Any change to this, in other words any bullish news within the forthcoming report or subsequent adverse yield news, could well send prices higher adding credence to our earlier “seasonal low” comment.

In wheat, we saw Egypt once again in the market with France showing its competitive position by securing 180,000 mt and Argentina winning a 60,000-mt shipment, its first this season. Interestingly there were no Black Sea offers confirming our previously stated opinion on their supply situation. Indeed Russia has reportedly sold about 10% of its intervention stocks onto the domestic market to counter rising prices, which have reached record highs. US offers were competitive on a FOB basis, however the additional freight costs left them out in the cold on this occasion.

Finally, the UK domestic grain market is receiving concern over the prospects for next year’s grain crops even though this year’s is not fully harvested. Wet weather, which has delayed this year’s crop, has hampered both drilling and crop establishment as rain continues to fall on already saturated fields.
The prospect of acres lying unplanted, or fallow, is looking very real and this will impact output next year, hot on the heels of this year’s much discussed weather-hampered season in which both yield and quality have been compromised. Unless conditions change, and change rapidly for drier weather, we will be facing another potentially poor season.