• The US has issued its latest weekly export data as follows:

    Wheat; 524,800 mt which is within estimates of 400-600,000 mt.
    Corn; 512,600 mt which is above estimates of 350-450,000 mt.
    Soybeans; 1,171,000 mt which is above estimates of 750,000 – 1,000,000 mt.
    Soybean Meal; 274,600 mt which is within estimates of 150-300,000 mt.
    Soybean Oil; 4,700 mt which is below estimates of 15-30,000 mt.

• In Brazil’s top soybean producing state, Mato Grosso, there are still fears that the periods of intense drought which have been experienced may well jeopardise output. 4 to 8 inch moisture deficits and rainfall barely hitting 50% of normal were experienced throughout late 2012. Although January rains did increase significantly the conditions which followed in February were uneven with extended dry periods lasting 10 days or more. It must be borne in m ind that this is very unusual in the tropics where daily rains are the norm and the high daytime temperatures dry out topsoils rapidly. Late planted crops which are in their pod filling growth stage will be most affected.

• One commentator has suggested that the crop does not feel like a record this year despite the 10% increase in acreage. The USDA’s latest forecast is for a crop of 83.5 million mt, others are pitching lower numbers ranging from 81 to 82 million mt.

• The US corn belt has benefitted from the recent snowfalls leaving an excess of soil moisture when compared to normal. For crop land to maximise the benefit from the snow an orderly and steady melt would be ideal; latest forecasts seem to be providing just that, a gradual warming with daytime temperatures above freezing and nighttime temperatures falling below. The early outlook is, for once, showing some some improvement.

• In Australia the wheat planting season, which begins in May and runs through June, is approaching. For crop prospects to look good, eastern Australia will need significant heavy rainfall to replenish drought parched land which has resulted from last year’s drought. New South Wales and Victoria also have serious moisture deficits in their soils. The southeastern wheat regions look better with rainfall and soil moisture close to average at this time.

• We have heard that Germany has purchased 60,000 mt of feed wheat from Brazil, due to arrive in a few weeks; maybe this is a sign of things to come as a consequence of the furious EU export pace seen this season.

• Talking of which, Brussels issued a further 455,000 mt wheat export licences this week, which brings the season total up to 14.554 million mt; this compares with 11.159 million mt at the same time last season. The additional 3.395 million mt represents an increase of 30.4% year on year, which is slightly lower than last week’s gains but still a huge increase which looks as if it will create an issue at the end of the season if it continues.

• Markets have been somewhat mixed today with wheat taking up the running in afternoon (UK time) trade. As we approach tender on CBOT markets the clever money is sitting on little in the way of delivery for agri commodities (soybean oil excepted) due to stronger cash markets. Long-holders will likely wait and squeeze the shorts still further, leading to a greater inverse. This may be something of a trigger to higher levels, and the situation is only likely to be exacerbated when we get to May when the same situation is likely amid even tighter supplies.

• Today’s run up on wheat levels could well be a reflection of the volumes which are being fed in the absence of bountiful corn supplies. One commentator has already draw attention to this fact and coupled it with ever tightening global stocks as well as an increasing fund net short position – all pointing towards a potentially explosive situation.

• From a new crop US wheat perspective, the ongoing snows have undoubtedly helped the drought stressed wheat producing states, indeed Kansas, Oklahoma and Texas, the three leading hard red winter producers, are now talking of a surplus position as far as precipitation is concerned. How things change! That said, subsoils remain dry but spring growth prospects have improved significantly. It must be remembered also that no matter how much insulating snow cover has been in place and how much beneficial rain has fallen, if the plant was dead beforehand, it will still dead now! We commented months ago on the wheat acreage likely to be abandoned in spring, and we believe little has changed since.

• In Russia the strong pace of early wheat exports and disappointing harvest has left their domestic market tight to say the least. Domestic wheat and flour prices have reached record levels this year, although easing a little in recent weeks. Sales from intervention stocks are estimated to reach around 4.5 million mt leaving end of season intervention stocks depleted at an estimated 300,000 mt. The likelihood of a strong intervention purchase policy is high although this will be dependent upon overall production. It would appear likely that exports in 2013/14 will be closer to those of 2012/13 at 15 million mt rather than those of the previous season at 28 million mt. It is probably too early to speculate on the amount of winterkill this year but an estimated 12% of winter grain crops are reported to be in “poor condition.” How big an acreage will need to be resown, and with what, remains the subject of speculation at this time.

• Finally, the latest estimate on the volume of vessels in the Brazilian lineup is now over 11.7 million mt and time to loading in excess of eight weeks. Given the delays and associated costs, as well as the logistical nightmares in the interior, together with further threats of port workers taking strike action, it is little wonder that concerned consumers (China?) are looking back to the US for supplies; a situation the US can ill afford from its own tight supply position.

• Today’s big picture summary is – grains “up”, soybeans “down”; albeit with little conviction as market moves are quite tightly constrained with 20 minutes to go.

• Traditional “turnaround Tuesday”holds little in the way of convincing direction and, as a consequence, we can bring little in the way of matching convincing commentary!

• Probably the most significant comment we can muster tonight is that we remain fully aware of the bullish fundamentals, but are also increasingly alert to the strong bearish technical picture which appears to be dominating at the moment.

• In a situation when technicals and fundamentals disagree, we would normally place a stronger emphasis upon fundamental analysis of situations; however, we see price action following the technical analysis right now and feel that market direction is following its lead.

• We believe that the March 1st stocks report, due for release late March will provide some clearer price direction.

• The new week has started with red being the predominant colour on the screens once again as soybeans and wheat both post lower numbers in Chicago. Corn is trading either side of unchanged with just over half an hour to go.

• The wheat market has been pressured by further heavy snow forecasts across the Plains, but strangely the reported Chinese soybean buying has not provided the support we expected to see in the market today. Out of the huge vessel lineup in Brazil we understand that Chinese soybean vessels account for some 8 million mt. Their dependence upon loading is vast to say the least, and any disruptions (such as last week’s port workers strike) will not relieve the pressure. This is perhaps the reason why additional enquiry is seen in the US, to ensure pipelines are filled; at the expense of an extremely tight US S&D!

• We hear that winter wheat crops in Russia are enduring similar conditions to those being experienced in the US, in need of further moisture following autumn drought. Southern regions would appear to have endured dry planting conditions followed by well below normal precipitation (below 50%); key regions have experienced poor germination and emergence on a reduced acreage. Early 2013 rains improved the outlook but February conditions have reverted to dry with many areas receiving little, if any, rainfall.

• The bottom line is that heavy rainfall is needed in order to prevent the crop deteriorating, autumn drought has left depleted subsoil moisture levels. Russian wheat growers need a good season to replenish stocks reduced by heavy exports and strong domestic consumption which has also drawn down on intervention stockpiles which also need to be rebuilt.

• Argentina’s Rosario Grain Exchange has today forecast their 2012/13 corn crop at 25.5 million mt, one million mt lower than previously estimated last month. Their soybean estimate stands at 48 million mt, a full 5 million mt down from last month.

• In Brazil, Celeres reported the soybean harvest as 28% completed, an improvement fro 19% a week ago.

• As ever, the week has been interesting, which we seem to report most weeks! We learned many years ago that two days are rarely the same and weeks have a greater tendency towards variation than days, this week being a case in point.

• There has been a marked divergence in price trends between the soybean complex and the grains (corn and wheat) with the former making gains whilst the latter languish at lower levels.

• May ‘13 soybeans in Chicago are now flirting with the $15/bu level, which may well trigger some additional support and buying, pushing the market to higher levels but the initial stimulus for price gains would appear to have emanated from continued strong demand for both beans and products. China continues to source soybeans to lock in their positive crush margins, the EU remains a buyer, and the US domestic crush and demand appears to remain strong. Cash basis remains firm as exporters and crushers alike continue try and squeeze supplies from increasingly strong farm sellers. Little wonder we are beginning to see some upward direction!

• In terms of wheat we remain unconvinced that current price direction is correct! That is not to say we believe the market is wrong, that is never the case, however everything we see from a fundamental perspective appears to point towards bullish tendencies. The old adage that a bull market needs constant feeding may well provide a clue to our current, well-established, trend. We have seen a significant price decline in the last three months, in the order of 20% basis CBOT futures, in the face of adverse weather issues in many producing regions which is reducing output prospects. If we look at the EU end of season stock projections, these are estimated to stand at 20 days usage; not a comfortable situation by any measure. Argentina’s wet weather reduced and damaged crop added to the shortage of supply in Russia and limited Black Sea stocks all add to our fundamental view that prices look cheap right now.

• The one piece of news being traded as far as wheat is concerned right now is the recent heavy snowfall across the US, which is helping to provide much needed moisture across the parched mid-west and plains regions. However, from what we can establish, it would seem unlikely that the damage done to subsoil moisture levels in the last nine months will be fully corrected in time for this season’s crops and their prospects.

• Speculators, in the form of funds, withdrew money from the markets in the run up to the brinkmanship of the US Fiscal Cliff, and have established a large net short position. Last week this stood in excess of 67,500 lots net short, which is some way off their largest net position since the beginning of last year (97,259 net short) but still a big position nonetheless. If for some reason the funds decided that they wished to reverse or significantly reduce their position we could see some potentially large price reaction.

• Corn prices have similarly declined along with wheat and are currently testing level not seen since early January ’13 lows. From a technical perspective, if these lows are breached we could well see further significant decline, which would (as with wheat) fly in the face of fundamentals.

• The USDA Ag Outlook Forum is coming to a close in Washington DC. Crop projections put together by a multitude of USDA agencies are featured and like most years, the Forum projections were bearish for grains. The biggest surprise in their balance sheets for the 2013/14 crop year was only moderately higher corn usage for ethanol. Many analysts are expecting a figure closer to 5 billion bushels of corn for ethanol while the USDA numbers were closer to 4.7 billion. With an abundance of corn from a 14.5+ billion bushel crop, the USDA expects feed usage to rebound to 5.4 billion bushels, a figure not seen since the 2007/08 season. However, at the end of the day, the USDA is still projecting a 2+ billion bushels carryout that is likely to weigh on any new crop rally.

• The next significant event on the reporting calendar will be the release of 1st March stocks, due later in the month, which may well give markets the “shot in the arm” they are looking for; time will, as always, tell.

• The USDA’s Agricultural Outlook Forum has released its acreage and yield projections for 2013 harvest, the summary of which follows:
• Clearly the Forum is taking a bullish view on corn and soybean acres at the expense of wheat when compared with initial projections which we recently commented upon. However, overall Forum acres are over 2 million below last seasons final figure.

• Interestingly, the season price projections leave corn at an average figure of $4.80/bu, soybeans at $10.50 and wheat $7.00. It must be borne in mind that these numbers are for NEW crop and we still have some old crop mountains to climb yet.

• China is believed to have been the buyer of todays “unknown destination” sales of 130,450 mt US soybeans (of which 75,450 was old crop), and 110,000 mt US wheat (55,000 old crop). The wheat numbers have been taken by the market as bearish; CBOT wheat is hovering at $0.15/0.20 down as we write this.

• The IGC (International Grains Council) have left their estimate of world 2012/13 wheat production unchanged  at 656 million mt, whilst elevating 2013/14 output some 4% with stocks building around 2 million mt. Their estimate of world corn output for 2012/13 is increased mom by 5 million mt to 850 million mt.

• US weather reports indicate some heavy snowfalls across the hard red wheat growing regions which could add a potential of up to one inch of moisture. Overall moisture deficit is being eroded, but slowly and more precipitation is required if springtime soil and subsoil moisture levels are to get close to normal. It is believed that a weakening La Niña effect is the cause of improved US rains, if this effect persists it is likely that more generous precipitation will help to relieve the persistent dry conditions.

• Brussels issued another 627,000 mt of wheat export licences this week with the season total now at 14.099 million mt, compared with 10.695 million mt this time last year. The increased 3.404 million mt represents an increase of 31.8% year on year; being repetitious yet again, we struggle to see how this can end well for everyone. Projected season ending stocks will be further depleted to below three weeks usage, remember last year’s rain delayed harvest, how could the EU cope with another rain delayed harvest if it were to occur? The impact on price would be something our grandchildren would talk about we suspect! How this translates into a $0.20/bu price decline in Chicago also causes us to raise an eyebrow once again.

• We appear to be on the receiving end of another positive day in terms of CBOT markets with all three key products displaying green prices on the screen at the time of writing.

• Of note today was Egypt’s 60,000 mt purchase of US soft red wheat for mid-April shipment. There were no French or other EU offers, Australia was also absent, and the one cargo purchased was around $5/mt cheaper than anything else. Clearly the Egyptians can spot a bargain when they see one!

• Whether this purchase has added any real support to the market, or not, remains to be seen in coming days and weeks.

• Soybean complex levels have remained firm as the US continues to see interest from China, as we remarked yesterday, in the light of potential Brazilian supply problems and ongoing positive crush margins. China is rumoured to have purchased 6 to 8 soybean cargoes this week, and it is only Wednesday! We continue to believe that the US S&D is too tight right now to allow continued export business without seeing substantial upward price adjustment to at least ration some tonnage before it is too late.

• In Brazil we hear that the Mato Grosso dry conditions are hitting yield potential to a significant degree although increased acres are making up for some of the shortfall. The USDA’s projected outturn at 83.5 million mt, issued recently, may well be optimistic given the recent weather conditions.

• Reuters Commodity Research arm, Lanworth, has issued its latest crop forecasts as follows:

US
2013/14    Soybeans    3.465 billion bu
2013/14    Corn    13.7 billion bu
2013/14    Wheat    1.91 billion bu
Argentina
2012/13    Corn    25 million mt
2012/13    Soybeans    49.6 million mt
Brazil  
2012/13    Corn    75.8 million mt
2012/13    Soybeans    81 million mt

• Early commentary would suggest that soybeans could well be the favoured US crop given a declining view of corn profitability and a potential switch away from corn on corn acres. Again, time will tell, and the way in which price structures develop in coming weeks will also likely have an impact on planted acres.

• The reduced Argentine output was attributed to hot and dry weather conditions in the early part of this year, and mirrors the view of others. Similarly, the improvement in Brazilian output matches that of other forecasters at this time.

• The return to work in the US after President’s Day has left us with some interesting times. The soy complex is displaying strength whilst the grains are languishing once again in negative territory. The soy strength is beginning to create a more bullish technical pattern with prices moving above their 50 day (relatively short term) moving average. As we suggested last night it would appear that China have returned to the buying table, and are looking to secure S American supplies. With crush margins in China at or near to record high levels their buyers are keen to secure stock in order to lock in those margins whilst they exist. It was announced today that China purchased another 120,000 million mt of US old crop soybeans, which helps to illustrate the point.

• We hear of further growth in Brazil’s port lineup with tonnages hitting 11 million mt, we reported previously that the biggest proportion of this tonnage is for soybeans, and nothing has changed to date in this respect. The prospect for Brazilian logistical issues of some magnitude is very real and as a consequence we may see tonnage being switched back to the US, albeit with their tight supply position.

• Oil World have issued their latest forecast of S American soybean production with the Argentine crop estimate at 50 million mt, down from 52 million mt mom, and Brazilian output at 82 million mt which is an increase of 0.5 million mt. Last year’s output was 39.9 million mt and 66.4 million mt respectively. The detail of this year’s output should be placed into context regardless of the odd million or two, this year will be huge by comparison.

• The grain markets took a tumble today, pressured largely on much needed precipitation in the form of a snow storm in the US Plains. It was clear that the resultant price drop has encouraged further consumer covering. The top three US wheat producing states are reporting near normal winter rainfall/moisture although much more is required to replenish the summer and autumn drought fuelled subsoil moisture deficit.

• Brazilian corn and soybean producers have received beneficial rains but coverage has been mixed leaving some growers still dry. Overall it would appear that conditions have improved a touch. In Argentina some good rains have fallen over the last week but more is needed if there is to be a significant improvement in soybean and corn crop condition following weeks of hot and dry weather.

• With the US closed for their President’s Day holiday we appear to have been at something of a loose end today with markets lacklustre at best.

• The weekend has seen some slight improvement in the weather pattern over Argentina with some shower activity, but make no mistake, more precip is required in coming days and weeks to relieve the current dry stress situation. In the US, the southern Plains region has also received some welcome rainfall but nowhere near enough to put an end to the summer, autumn and winter drought which they have been experiencing.

• The US soybean crush figures, released Friday, is 16 million bu above l;sat year’s level, and continues to set usage records. It is expected that the March 1 stock report will show the lowest stock level in a decade when it is reported at the end of March. Crush margins remain positive in the US and also in China, who are expected to return to their buying pattern having returned from a week long absence in celebration of their New Year holiday.

• We await the opening of US markets tomorrow with interest to see if there truly are any signs of price recovery and reversal of price declines.

• At last we have a day with a more positive tone as some price recovery is evident ahead of the US extended holiday weekend to celebrate President’s Day. Profit taking and a degree of “risk-off” is likely in view of the shifting nature of S American weather at a time when it is so crucial to ongoing crop development.

• In addition to pre-weekend position squaring and profit taking we hear of rumours that both China and Brazil are looking for US wheat, suggesting that US prices are low enough right now.

• Forecasts for the EU’s wheat output issued by Stratégie Grains this week are reduced by just over 1 million mt to 132.2 million mt. The number one and three producers, France and UK, account for just over a 4 million mt reduction following poor autumn sowings, reduced acres and likely damage as a result of wet weather. The EU’s overall output is not reduced as much due to improved prospects elsewhere within the region.

Our weekly summary PDF file is available to download, please click on the link below:

15 Feb 13 weekly summary