Markets have all trended lower today in a follow through coupled with week-end, month-end and pre-Christmas profit taking whichever you wish to choose!

That said, the fundamentals are pretty much unchanged. There is little in the way of fresh news…… apart from China’s recent statistics reported on Reuters; a record 2012 grain harvest for a ninth straight year with total output up 3.2% at 589.57 million mt according to the Chinese National Bureau of Statistics. Corn reached a record 208.12 million mt (up 15.34 million mt), rice a record 204.29 million mt (up 3.28 million mt) and wheat at 120.58 million mt, the second highest ever. Good weather and better yields were cited as being responsible for the improved output, seemingly government subsidy and incentives also added some encouragement! (Writer’s cynical note – hmmmmm are they potential buyers?).

CBOT markets showed an inclination to trade higher this morning until we saw the publication of weekly export figures which continued to show disappointing figures for wheat and corn. The market sold off to lower levels in the afternoon and latter hours of the session. Soymeal sales were above expectation and beanoil was in the expected range leaving the soy complex to trade either side of unchanged.

In S America we have continued to see wet conditions persist and, according to Buenos Aires Grain Exchange (BAGE), both soybean and corn plantings behind normal for this time of year. In stark contrast, the dry conditions in S Brazil appear to be worsening with soil moisture reported to be displaying a four to five week moisture deficit equivalent to 2.5 to 3 inches. The crop moisture requirement for both soybeans and corn rises significantly when grown in this region compared with the US for example.

It is too early to assess the impact on output in either Argentina or Brazil right now, suffice to say the effect is not favourable and a change in weather conditions is necessary if crops are to fulfil their potential this season and provide relief to tightening global supplies.

EU wheat exports licenses were granted for 454,000 mt bringing the season to 8.177 million mt, this compares to 7.724 million my last year. We continue to maintain that this pace is not sustainable and the emphasis on global wheat trade must move away from the EU (probably to the US) in the very near future if acceptable year end stocks are to remain.

CBOT markets gave back some of yesterday’s gains in early trade but as the day progressed we saw prices, particularly in wheat and corn, edge back into “green”, or positive territory once again. The soybean complex however (at the time of writing) has continued to post slight losses on the day.

Oil World has today reported that soybean prices are too low and do not fully reflect the risk associated with S American output as weather related setbacks and a potential return of La Niña conditions are contemplated by observers. The statement by the respected analysts continued by referring to  “the unusually small world stocks available at the beginning of 2013.”

Conditions in S America, particularly dryness in Southern Brazil, have raised concern over output which is almost being considered a necessity to restore a more balanced equilibrium to the much reported tight global supply situation. Typically, La Niña conditions are less than favourable for S American soybean output as was seen last season.

Australian based Macquarie Bank have suggested that we are about to see a rebound in US wheat exports which have been “terrible” so far this season. The change in export fortunes is attributed to rainfall derived quality issues in S American supplies, limited available supplies from Russia and Ukraine as well as pressured EU supplies. The outcome of the next tender from Egypt, who have been absent from the market this month, may well add some credibility to their view if the US is awarded contracts. We will watch with interest.

Wheat prices in both London and Paris moved higher again today with London reaching new contract highs in both old and new crop positions. Prospects for new crop supply are, as previously mentioned, pressured due to the extreme wet weather and flooding being experienced in the UK, which has restricted autumn sown acreage to well below “normal” levels. One UK consumer, referring to new crop wheat today said, “it looks as if we have missed the boat!” Given the level to which new crop prices have risen and the prospects for crops around the world, he may well be correct.

CBOT markets opened higher this morning with wheat gaining ground after the US winter wheat crop condition declined another one percentage point to 33% good/excellent and the poor/very poor rating increased two percentage points to 26%. Albeit these moves were pretty much expected but the market took the news to heart and rallied strongly.

The ongoing dry conditions in the US Plains coupled with above average temperatures are preventing the crop entering into dormancy and consequently prolonging and exacerbating the crop’s stressed status. We are picking up on reports of wheat crops turning brown and displaying signs of dying off. Whilst this is an early indication of the crop (and unlikely to be representative of the whole crop), some commentators are already raising their estimate of abandoned acres and trimming yield forecasts.

The prolonged “bearish” view on US wheat, which has predominantly emanated from the lack of sizeable exports so far this season, could well be about to be tested. The remainder of the week will be very interesting to  monitor.

Today the HGCA’s UK supply and demand report confirmed what we have been discussing for a while; that is that the UK will be a much larger wheat importer than in previous seasons, potentially topping 2 million mt as a result of the well documented poor harvest which impacted both yield and quality. In addition there are further wheat tenders in coming days by Jordan, Iraq and Algeria, which will add pressure (particularly to EU prices) at a time when we hear that, at long last, EU feed producers (notably French) are coming to the market to take cover. Both Paris and London markets rallied strongly with Paris volumes reaching a huge (for Paris) 37,458 lots.

Elsewhere in the world the pattern on wheat markets remains pretty much unchanged; in other words there is little in the way of good news to offset what the trade has reacted to today.

We believe that he soy complex is one to watch in coming days and weeks; beanoil export volumes continue to run at levels ahead of expectation with the implication that stocks will decline by as much as 50% to one of their lowest levels since the late 1990′s. Fund short positions, which are large, if they chooses to cover and go long, could well prove the catalyst for the “explosive” price moves we have been highlighting for some while. Caution is the watchword right now!

We return to a new week, after the US’s Thanksgiving break, to markets which have attempted (with little vigour) to rally; but; have managed to stay in positive territory throughout the session. Some technical levels (corn in particular) have provided support via 50 day moving averages and medium term downtrends which are now acting as supportive price levels at which traders are happy to go long in search of higher numbers. Will they hold? Will prices advance throughout the remainder of the week? Key questions which remain to be answered.

The spillover from last week’s export figures (corn and soy in particular) helped the day get off to a positive start, and the news from Australia of poor protein levels in recently harvested wheat assisted the tone. To this we can add the poor prospects for Argentine output and the ongoing dry US Plains issues which make wheat look less than exciting. All in all, the prognosis going forward does not look fantastic.

At home in the UK we are being bombarded with news (as well as the physical symptoms) of extreme wet weather which adds to saturated ground creating floods in many areas and making field work impossible. For the record we are looking at over 200 flood warnings and 300 flood alerts in existence right now, rainfall in excess of two inches in 24 hours being common across much of the country and many communities suffering as a consequence. It appears that only around 70% of planned winter crops are in the ground right now, in a “normal” year this would be 100%.

The upshot of these circumstances are that we will either see an extremely late winter planting or a change to spring sown crops. Either way, the effect will be reduced output in an already pressured supply situation. The early setback to 2013 UK harvest prospects is pushing some consumers into “buy” mode with mainland EU supplies once again looking competitive and potentially filling the gap.

There appears to be little, if anything, on the horizon which could be labelled “good news” in the grain and feed markets right now.

It has been an interesting, if shortened, week with the US’s Thanksgiving celebrations extending into a reduced Friday trading session. That said, we have had a few snippets of non US news which might just make interesting Friday evening bedtime reading!

Egypt has indicated that it is holding around six months stock of wheat which may take away some pressure from its potential in coming tenders. We view this as potentially bearish in the marketplace which has bullish tendencies. That said, Egypt will still have to return to the market in the current (tight) crop year which negates some of the bearishness.

In the UK we hear news of the delayed Vivergo plant coming to an opening in 2012 placing additional pressure on an already strained marketplace. The original plan was to open in the 2010/11 crop year but construction and other delays have deferred this – until now it seems. The potential for the plant is in excess of one million mt wheat, over 400 million litres of bio-ethanol and around half a million mt DDG/moist feed. It appears that the business is gearing up its grain purchasing and intake albeit it is not clear right now to what level of capacity.

Whether or not the plant will emulate the Ensus plan by utilising corn is unclear; the Ensus plan to utilise some 20%  of French corn, possibly increasing to 50%, would appear to be dictated by the depleted starch levels in domestic wheat crops this season. Some commentators suggest that an increase to 50% corn inclusion would not be beyond the bounds of possibility, we have had no confirmation of these figures.

Confirmation of wheat sales (50,000 mt) by Germany to Brazil come as something of a shock to the marketplace today. The implication is probably more for Argentine quality and the potential implication in coming weeks/months for the sales already on the books by Argentina. These sales were made at substantially lower levels ($40/$50) than current replacement and indicate the pressure which exists on those shippers to ensure contractual fulfilment. We are clearly going to experience an interesting few weeks as harvest unfolds.

Next week, as the US returns to “normal” will also be interesting to observe.

We would like to wish all our subscribers a very Happy Thanksgiving.

Last night the USDA issued the latest crop condition report which, unsurprisingly, saw a further reduction in US winter wheat rated as good/excellent from 36% to 34%. The poor/very poor proportion increased from 22% to 24%. The good/excellent figure is a record low and attributable to the persistent drought conditions experienced in the Plains. It would appear that the US soil moisture profile is the seventh lowest since the turn of the LAST century and the Plains are the driest EVER recorded. These conditions are elevating concern levels not only for grain production, but also for consumers and graziers alike.

We hear that it is the percentage of the crop recorded in the poor/very poor category that provides a better correlation to yield rather than the correlation with good/excellent, and, given the dry outlook over the next couple of weeks, we are already picking up on discussions of reduced US wheat output. Clearly, how the crop overwinters and the amount of moisture which the soils can accumulate over the winter will be crucial to 2013 output.

Closer to home, we have looked at EU grain end stocks previously, and reported on the extreme tightness of supply, currently estimated at some three weeks usage. The ongoing pace of grain exports shows little, if any, sign of letting up, and with cumulative grain shipments hitting 9.6 million mt (wheat and barley combined) we are more than 10% ahead of the same time last year and well ahead of USDA forecasts. We either need to reduce the pace of exports or increase imports of grains to restore the balance sheet to manageable levels.

The likely grain of choice for importation will be corn, and reports circulating at present estimate that some 12 million mt will be required to balance the books. “Where from?” is the question. Brazil is not offering into next year as supplies appear to be well committed and the tight US position would seem unlikely to provide the necessary volume.

The requisite action is for EU grain prices to rise, and do so soon, to limit further exports by becoming uncompetitive in the global market place; thereby driving the US into the supply role (at last). When the world wakes up to this pattern we expect to see explosive price action (to the upside) unfold.

Monday started with CBOT markets showing some sign of recovery, possibly even strength, on a slightly lower US$ and hope that the US will not drop, lemming like, off the much discussed fiscal cliff at the end of the year. Equity markets around the world have found comfort in the news and posted gains throughout the day which has added to positive tone. At the same time, energy markets found renewed strength on the increased tension in the middle east, Palestine and Israel, and this has spilled over into agri markets.

Funds are reported to have been buyers today  as have consumers which has helped push markets higher into the later stages of the session. Cash basis has continued to stay strong in the US grains as farmer selling is limited and consumers as well as exporters remain buyers.

EU grain markets took comfort from the US gains and rallied in sympathy making gains on the day. The parched US Plains continue to receive little in the way of rain and the outlook for the winter wheat crop does not improve right now. Similarly, the Russian wheat growing regions remain dry with little in the way of rain in the forecast. In contrast UK and northern European wheat growing regions are suffering from too much moisture and consequent delays; it seems that global wheat prospects for the 2013 harvest are on the back foot right from the outset.

It has been yet another intriguing week following last Friday’s USDA report. We thought we would look at some of the seeming anomalies arising from the detail and see where they pointed us.

1. In soybeans we saw increased US yield, above trade estimates and seemingly not as a consequence of a huge pod count; the actual figure is the lowest in nine years! Not only that, they have increased the weight of beans per pod in each of the last two reports AND the November report gave the highest pod weight in nine years, all in a drought year!
   
2. The corn numbers saw US yield marginally higher and closer to the upper end of the range of trade estimates. The key element as yet unrecorded will be the percentage of the crop harvested, or, put the other way round, what was either abandoned or cut for forage in a year when grassland was burned to a crisp by the drought. We will know in the January report what this figure is but we would place a small wager that it will leave the harvested proportion lower than stated in the latest report
3. An unchanged corn output in both Ukraine and Argentina left us scratching our heads in wonderment. The weather conditions in both regions have left the crop hugely vulnerable to reduced output according to virtually everything we see and hear.
4. The level of world corn imports has seen an increase of just 3 million mt, which seems light to us even if we just look at the potential for increased volumes in the EU.
5. In wheat, we acknowledge the USDA’s reduction in Australian output, but it appears they “forgot” to consider the same course of action as far as Argentina is concerned! The Argentine crop was left unchanged at 11.5 million mt which, given their atrocious conditions, is looking likely to impact both yield and quality.
6. Finally, the (slight) reduction in US wheat exports caused a raised eyebrow given the reduced export potential in other key exporting regions, namely Black Sea, EU, Australia and Argentina.

We would not wish to be considered arrogant in our opinion, preferring the title of “challenging” in our interpretation of the reported data. Clearly, time will tell if our thought process is on the right track or not.

Aside from the review of last week’s report we have had “confirmation” (once again) of Ukraine’s cessation of exports effective 1st December. Where this will leave those who have shipments scheduled after that date is anyone’s guess right now but we would not wish to be holders of such contracts today. As we write this, it appears that wheat exports from the region are getting priority and corn shipments are dangerously close to going into default as a consequence.

This week’s EU total wheat export licenses reached a whopping 750,000 mt, the largest figure since the Russian export embargo in September 2010 when the figure hit 1 million mt. The cumulative figure now stands at 7.3 million mt a full 6.5% greater than the same time last year. Pressure is clearly in place for this export pace to continue due to limited supplies from elsewhere, we suspect this week’s “optional origin” purchase of 400,000 mt by Algeria is likely coming from France. Hopefully this adds credibility to our earlier comment on the need for greater corn imports to fill the growing gap in feed requirements.

One further point for consideration was the news on Wednesday that the US Army Corps of Engineers are about to proceed with plans to reduce the flow of water from the upper reaches of the Missouri river reservoirs in an effort to preserve water stocks in a drought related conservation measure. The impact of this measure is to potentially lower the water levels in the Mississippi between St Louis and Cairo, Illinois at a time when water levels are already low following the summer long drought. The prospect of barge traffic being halted as a result is believed to be very real and the stranglehold this will place upon grain exports is not to be underestimated. Measures to keep the waterway open for longer, such as dredging and removal of obstructions, are being discussed but concerns are rising. There are on-going discussions as to the legality of the measure, which we will watch with interest.

Once again we have had a week where we have seen a decline in prices, which we find hard to justify based upon fundamental news and information. Under the circumstances we continue to recommend keeping cover at high levels and using dips to top up as necessary.