Sometimes it is difficult to pull significant events out of what has happened over a period, and this is one of those weeks. A number of relevant and newsworthy issues have come to the surface, BUT none of them seem to hit us between the eyes at terminal velocity!

UK farmers who have been pressured by excessive rainfall received a period of respite in a cold snap which allowed a brief period in which it was possible to get machinery onto the land – and combines were seen rolling once again, in December, gathering a very late harvest. However, the weather window has not added significantly to the autumn wheat sowings, which remain behind expectations at around 80% leaving the very real prospect of another sub 14 million mt harvest in the UK next year.

In S America reports of barley harvests bring little to raise a smile, the early reported yields are running nearly 40% behind expectation in northern regions which, if representative of the country as a whole, could take up to two million mt off the national crop and pressure already tight exportable volumes As with wheat the outlook for the crop is already blighted by the on-going wet weather and not only yield reductions are hitting the headlines but quality fears are already well reported. The key outcome remains to drive buyers to alternative origins to source material but, as we have previously reported, many traditional sources are already tight on stocks.

As if this was not bad enough, we picked up on reports that some Argentine wheat exports are blocked due to a “lack of export permits”. The AgMin have denied that there is any export suspension, but we did hear that the Argentine government “may” be about to apply some form of pro-rata to existing export licences as they are struggling to find the necessary volumes of wheat. We stress that this is, as yet, unconfirmed, however the wet conditions experienced over recent weeks and months does give a degree of credibility to the rumour.

Further north, in the USA it has been estimated that the winter wheat abandonment rate may reach as much as 25% as continued warm weather and lack of rainfall continue to stress the crop. Clearly the decision to plough up the crop and re-seed will wait until spring but the crop outlook has continued to decline beyond the last released USDA condition report as temperatures have remained higher than that required to allow the crop to enter winter dormancy; thus prolonging the period of drought induced stress. This level of abandonment has only been seen twice in the last 50 or 60 years, 1988/9 and 2001/2. The decision on what to plant instead will only be made when conditions in the spring are known.

CBOT prices, despite the potentially bullish news, remain stuck in a broad range downtrend that has plagued the market since late July price peak. Even the news last weekend that Egypt, in their first tender since October, had awarded 280,000 mt (out of a total 400,000 mt shopping spree) to the US failed to give the market the shot in the arm it is looking for. The next tender, the date of which is unknown, may well reinforce the message that US wheat is now competitive in the global arena, and highlight that the rest of the world is struggling with tight supplies.

Thursday’s US export figures contained one figure to grab attention, and that was the soybean export number at 1.14 million mt which was above the estimated 500-700,000 mt. The total soybean export commitments this season now stand at 28.4 million mt, which is nearly 6.4 million mt (or 29%) ahead of the position a year ago. Little wonder that we have remained friendly to the market, despite the significant price drop since early September. From a technical perspective we appear to be close to testing the $15/bu mark as we approach the week-end, a break through this level could well see the bulls take charge once again although we don’t believe that the funds have a great appetite for significant participation this side of New Year as they appear to be protecting profits and performance levels achieved in 2012. Maybe the dawn of 2013 will be the “trigger” for fresh upside momentum.

To conclude, in the “unremarkable news week”, we remain friendly to the fundamentals of the global soy complex and grains markets and urge consumers to remain well covered for the current season.

US weekly export figures released today were as follows:

Wheat: 353,100 mt, which was within estimates of 350-500,000 mt.
Corn: 47,400t, which was below estimates of 350-550,000 mt.
Soybeans: 1.14 million mt, which was above estimates of 500-700,000 mt.
Soymeal: 464,800 mt, which was above estimates of 150-300,000 mt.
Bean oil: 19,000 mt, which was below estimates of 50-100,000 mt.

The effect on the market close was corn settling 4 to 5 cents lower, wheat gaining a couple of cents and the soy complex finishing in positive territory.

In S America we heard reports that Argentinian some wheat exports are blocked due to a “lack of export permits”. The AgMin have denied that there is any export suspension, we picked up that the Argentine government “may” be about to apply some form of pro-rata to existing export licences as they are struggling to find the necessary volume of wheat. We stress that this is, as yet, unconfirmed, however the wet conditions experienced over recent weeks and months does give a degree of credibility to the rumour.

Staying with news from Argentina, the reported barley yields in the north are way below expectation, as much as 38% down, and if representative of the total crop, could take 2 million mt off the crop. The news has taken many by surprise and buyers are looking for alternate sources, without a huge degree os success right now.

According to Reuters the US winter wheat abandonment rate may reach as much as 25% as continued warm weather and lack of rainfall continue to stress the crop. Clearly the decision to plough up the crop and re-seed will wait until spring but the crop outlook has continued to decline beyond the last released USDA condition report as temperatures have remained higher than that required to allow the crop to enter winter dormancy; thus prolonging the period of drought induced stress. This level of abandonment has only been seen twice in the last 50 or 60 years,1988/9 and 2001/2. The decision on what to plant instead will only be made when conditions in the spring are known.

On a happier note, Brazil’s CONAB, the government food agency, forecast a 2012/13 soybean crop of 82.6 million mt, a figure greater than expected from the US crop this year. They also predicted their corn crop to be 71.9 million mt.

Weekly EU wheat export licences were issued for 746,000 mt bringing the season to date to 8.923 million mt, up from 7.966 million mt a year ago. Barley exports licences were 118,000 mt with the season at 2.581 million mt compared to 1.972 million mt last year. The combined additional exports close to 1.5 million mt so far this season; we continue to question how long this can continue and how big a “hole” is going to be left which will require imported feed grain to fill it!

Today’s news includes the latest forecast from private analyst Informa Economics who reduced the Argentine 2012/13 soybean crop to 58.4 million mt from 59.5 million mt last and the corn crop was cut to 27 million mt from 28 million mt last reported. At the same time Brazilian soybean output was increased slightly to 81.4 million mt from 81.25 million mt whilst corn numbers were cut slightly to 66.2 million mt from 66.8 last estimated.

The Argentine cuts were attributed to a drop in harvested acres and lower yields, the region has been suffering from excessive rainfall and flooding.

Interestingly, in the same report China’s 2012/13 corn crop was projected at 7.1 million mt higher at 208.1 million mt, the same as forecast by Chinese officials.

Australia’s ABARES has provided an upbeat report on their wheat prospects stating that crops were not a badly affected as many believed.Their estimate of the 2012 wheat crop was 22 million mt, down a million from their previous forecast but still 26% behind last year. Their outlook for exports was stronger than the USDA’s forecast, a figure of 20.9 million mt was quoted which would put them only second to the US in the league of global exporters with Canada and the EU following behind.

Closer to home in a move away from the usual “flooding and rainfall” stories we hear that combines are rolling in the UK once again! The recent freeze has firmed ground sufficiently in some areas to permit travel on previously waterlogged ground.

Given all the “good news” today it is little wonder we have seen markets ease a touch! However, we continue to maintain our view on the overall tightness of global stocks and caution against complacency.

A brief commentary will be the order of the week as I am travelling. However, I will happily respond to specific points which may arise, email will be the best way to achieve this.

Markets started off higher this morning making positive noises with reports that the funds were, once again, buyers. However, reported US corn and wheat exports were disappointing and capped gains and markets are currently trading below the highs of the day. Clearly, markets are nervous and appear to be searching a more definite “signal” before trading higher in strong fashion.

US Export data
                  W/E 29 Nov ’12         Year to date           Last year
Wheat        14.19 million bu         461 million bu        533.6 mil bu (-13%)
Corn           9.63 million bu          208.3 million bu     401.0 mil bu (-58%)
Soybeans   51.08 million bu         600.3 million bu    429.1 mil bu (+40%)

Saturday saw Egyptian wheat tenders awarded, and as expected, the US was the recipient of 280,000 mt. Additional tonnages went to Romania and France (60,000 each). The next question is, “when will Egypt be back to the table for more?” Our guess is that it will be the New Year but only time will tell.

The tender award probably marks the necessary slowdown in EU exports and the start of a stronger emphasis upon US origin material as we have been suggesting in recent weeks. The outlook for other regions remains bleak to say the least; Argentina has stopped issuing wheat export licences, their crop being described as “disastrous”, as much as 50% of the Uruguayan crop could be downgraded to feed grade and some Brazilian milling wheat sales are either being washed out or converted to feed grade. This leads us to assume that the S American balance sheet will need some revisions before too long!

The wheat outlook is not improving in our opinion.