US markets started the day a touch higher with the soybean complex leading the way. First quoted soybeans reached their most oversold condition in almost a year yesterday and some form of correction felt inevitable. For further declines in soybeans we will have to see significantly higher yield figures in the October report.

The price recovery continued through the session supported by the bullish StatsCan report as far as canola is concerned. Production was reduced by 2 million mt to 13.4 million mt which is below forecast demand levels. Prices jumped sharply across soybeans, canola and Paris rapeseed.

The highlight of the US export figures was the level of soybean sales at 47.6 million bu, China accounting for 37.7 million of these. A hefty 82% of forecast exports is now committed leaving precious little for the remainder of the marketing year. This week is likely to show significant soybean sales as well, China has continued to be an active buyer on this dip in prices

The key question now is, “have we just seen the seasonal low price in soybeans?”

Turning away from the much debated US harvest for a moment we note the level of concern being expressed at the prospects for next year’s UK 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.

UK wheat import volumes this season are likely to exceed those of the 2007/8 season when a total of 1.44 million mt was imported to bolster the poor harvest. In that year though the quality of the harvest was significantly better than that harvested this year and demand levels then were probably half a million tonnes less than they are today. Early signs confirm the situation with July showing net imports in excess of 100,000 mt, albeit much was imported to shore up demand which could not be satisfied by the weather delayed new crop. Additionally, flour millers will likely require imported grain to meet their quality demands which seem unlikely to be met by domestic supplies this season.

In today’s wheat tender by Egypt it was noticeable that Russia put forward no offers, indeed nothing was offered from the Black Sea region as a whole. Argentina secured 60,000 mt of business as France picked up the remaining 180,000 mt and despite reduced FOB offers for US origin wheat the freight disadvantage when compared with France left the US out in the cold.

US broker FC Stone has estimated the US soybean crop at 2.489 million bu, an improvement of 215 million bu and a yield of 38.2 bu/acre which is 2.9 bu/acre above the last USDA estimate. Corn also received an upgrade to 10.824 billion bu with a yield of 123.9 bu/acre which is a modest increase on the current USDA figures issued in September.

The pace of the US harvest remains rapid with corn reportedly 54% gathered, way above the 20% average; some states are expected to have finished by the weekend, far earlier than in previous years. The soybean crop has reached 41% harvested which compares with just 19% as an average and expectations are for about 60 – 65% by the weekend.

The consequence of such a pace has been for the soybean market to continue to decline as markets anticipate improved soybean yield in the forthcoming private estimates due this week. Wheat prices have also fallen again today whilst corn found a slight foothold on concern that the October output figures and tight end stocks could well cause a rebound.

The underlying fact that soybean stocks are going to be extremely tight, even if we see some improvement in yields, leads us to believe that the current decline represents a buying opportunity and the unwary could well get badly caught out.

Given the liquidation by funds it is interesting to note that the open interest has changed very little; it shows a swing from speculators to commercials, and if there is an appetite for the funds to return we could well see a return to higher levels in speedy fashion. There has been little, if any, demand rationing and the global balance sheet remains tight.

The day after the crop report started with corn displaying a degree more strength than either wheat or soybean complex markets. A combination of bullish USDA data and reports of corn yields which fail to excite have conspired to add to corn’s gains. We have a slew of private forecasts in advance of next week’s USDA crop production report and no doubt traders will be keeping an ear to the ground in an attempt to be one step ahead of the market going into next week.

Soybean yields, whilst variable, would appear to be a little better than expected. The larger than expected old crop stocks reported on Friday are limiting gains and indeed leading to losses. The precursor to a rally will most likely be either greater exports or worse yields.

Wheat markets have eased despite further escalation of Russian domestic prices, to record levels, and little in the way of offers from the Black Sea region. French origins would appear to be globally the most competitive and Matif wheat fell today! Rainfall prospects across Australia’s wheat belt, Argentine regions and the Black Sea winter wheat growing regions do little to bolster confidence going forward.

Short term price pressures, in a downward direction, are clearly driven by current harvest pressures. These conditions will soon be over, as harvests are completed and crop output know, at that time the potential for the bull market to resume will once again emerge.