• St Valentine’s day is bringing little cheer to agricultural markets as corn failed yesterday to stem the tide of a ninth day of decline and today looking as if it is likely to make it a tenth day of decline in a row. The losses are not limited to corn either with both wheat and the soybean complex trading lower too. US weekly soybean export sales figures showed a net 4 million bu of cancellations which can only be construed as bearish; the market seeming to agree!

• Despite the soybean cancellation news it must be remembered that soybean exports to date still account for some 93% of the USDA’s annual figure, which is the second highest figure ever recorded; corn and wheat stand at 61% and 76% respectively, neither number is significantly out of line with past data and therefore not particularly bearish. The key driver of pricing currently appears to remain the bearish new crop outlook for “huge” crops; which are yet to be sown, let alone harvested!

• The ongoing queue of vessels in Brazilian ports continues to expand with vessel volumes reportedly exceeding 10 million mt, a figure never before seen. The larges volume is represented by soybean vessels, close to 7 million mt. These figures demonstrate just how anxious global buyers are to get their hands on the first new crop supplies to relieve tight supply chains. The key question will be, what will Brazil choose to load? We feel that soybeans will feature ahead of corn which will place a burden on alternative cereal suppliers around the globe until such time as the soybean pressure is relieved.

• In other news the US attaché has reported that China’s wheat harvest is overstated, and significantly so with a quoted 9 million mt figure being discussed. The implication being the requirement to import more than usual in an already stretched global marketplace.

• Wednesday has, so far, bucked the trend of the last few days with markets displaying some slight tendencies to the upside. Are these the green shoots of recovery? Only time will tell.

• It has been reported that with better value corn prices, a number of US ethanol plants are being returned to production. Improved margins for processors as feedstock grains have reduced in price are the key reason cited for the dust sheets to be removed. Whether, or not, this move stimulates a recovery in corn prices, which have fallen for eight straight days, will likely be seen in coming days.

• Wheat levels have also seen a degree of recovery and the outcome of the latest Algerian tender will be viewed with interest. US soft red wheat would appear to be the best value, but Algeria’s alliance to and history with France may well impact their ultimate purchasing decision.

• The soybean complex has probably displayed the most negative picture in terms of price declines, assisted, no doubt, by the absence of key purchaser China due to their new year holiday shutdown. The impact of S American supplies onto global markets is having a perceived negative influence on pricing, but it should be remembered that until product is available and shipped, the influence is purely one of perception. The line up of vessels awaiting loading is reported to have now grown to such an extent that delays of up to 45 days can be expected, which can hardly be views as as positive factor likely to relieve tight supplies.

• In terms of weather issues, the ongoing very dry conditions in Argentina, which have extended now to nearly six weeks, are having a negative impact on both corn and soybean crops as stress levels have risen markedly. The crops, planted in some cases late and into overly wet seedbeds, are shallow rooted in many instances and, as such, are extremely vulnerable to the current dry conditions, more so than a crop planted under more favourable conditions with deeper and better developed root systems.

• Crop analyst, Michael Cordonnier, has reduced his estimate for Argentine soybean output to 50 million mt, a one million mt drop from previous, and well below the USDA’s latest 54 million mt forecast. His estimated corn output is 22.5 million mt, again well below the USDA’s February figure of 28 million mt.

• In Brazil conditions have turned wetter in the south and drier further north in something of a reversal of previous conditions. Mato Grosso state is drying fast in high temperatures and conditions are forecast to continue in this vein for the coming week, which will assist with harvest. Southern state, Parana, has had the benefit of good rains to relieve the recent dry conditions. However, it would appear that the persistent dry period has left soybean crops under stress.

• In conclusion, we can envisage a situation whereby a “double bottom” chart formation is created, in technical trade this can be a powerful support from which prices can rebound strongly. Given that, a) ethanol buyers will be in the market looking to secure supplies in order to lock in production margins, b) China will likely return from their holiday break keen to secure supplies at cheaper levels, and c) wheat tenders in the light of latest US soft red are offering some better value to buyers; a situation of buyer driven demand could provide some impetus towards higher levels.

• We have another “down” day with pricing boards exhibiting plenty of red numbers, signifying lower prices. Fund selling has been suggested as driven by Barclays, who have recently announced further job losses, exiting their long only fund. The bank’s selling has been noted across a number of commodity classes and the suggestion of source carries a degree of credibility with it.

• Selling pressure has left CBOT corn below the $7.00/bu mark, $6.80 (the early January low) looks to be a good support level right now. However, with what we believe to be a fundamental position which can only be described as bullish, the almost relentless selling pressure feels close to overdone right now.

• Cash buyers of corn are taking the opportunity to extend cover on the price break with farming sellers reluctant to commit volumes leaving cash basis strong. Our underlying view continues to be “buy the dips” and ensure cover levels, particularly on old crop positions, are not vulnerable to upward price spikes if they materialise.

• Comments will be brief tonight as I am out of the country, back tomorrow.
• Markets eased, particularly the soybean complex on improved S American prospects following rain showers across the Argentine corn growing regions and also S Brazil’s recent improved rains. It should be noted that whilst there may be rains to help prevent further deterioration, the crop does not appear to be improving and concerns are by no means over at this time.
• In the USA the hard red wheat crop is reported to be suffering to a significant degree on account of dry conditions. We hear reports of crops dying in some areas and there appears to be a serious need for immediate rainfall in quantity to prevent a disastrous HRW harvest.
• Physical cash markets continue to display strong basis as consumers struggle to place cover at more usual, lower, levels. This would tend to support the theory that stocks are tight, news which the funds seem to remain unreceptive to receive at this time. In CBOT wheat the fund net short position is at its largest in nine months, which, given the Plains situation and global stock tightness, leaves us wondering why.

• Weekend roundup.

• The week has, once again, been something of a less than spectacular one in terms of truly fresh information and we have been re-hashing old stories.

• The Russian 5% duty story would appear to be now factual, but with a twist! The time delay necessary to ensure due legislative process will probably mean it is not in force until April, and then only likely to be applicable until end June, a full three months! Rumours have circulated (unconfirmed) of soft red wheat trading into St Petersburg adding to the sentiment that Russia will be an importer and the commonly held view is that their requirement will be in excess of 2 million mt. With the exception of Kazakhstan, who may be in a position to supply up to 1 million mt, the likely source of supplies points to the US right now.

• In a similar vein, it is widely believed that a cargo of soft red wheat is to be shipped to the UK in March, which, if true, will be the first in some 20 or so years. The ultimate destination, whilst not known, is thought to be the UK milling industry, which stacks up from a logical perspective given the tightness of UK wheat supplies, particularly quality grains. The value in US wheat is certainly clear, and was again highlighted last weekend when one particularly cheap offer was made in response to Egypt’s latest tender in which they purchased the said “cheap” 60,000 mt parcel and nothing else. Noticeable was the absence of offers from alternative origins, with the exception of one expensive French offer.

• Our thoughts that the traditional exporters of wheat are running on tight stocks would seem to gain some credibility based upon the latest foray by Egypt into the market. However, we continue to find it somewhat odd that prices are not rallying in response.

• S American weather continues to be of interest, the latest episode in the news being the amount of rainfall in the key soybean producing state of Mato Grosso. Fungal disease levels are reported to be high, particularly rust, which although treatable with fungicides at a cost, does have a negative impact upon overall yield. That said Conab this week left little doubt that they were anticipating a good season. Their estimate of soybean output was raised to 83.4 million mt as a result of increased acres (27.6 million), this was an increase of 0.8 million mt from their January estimate. They also estimated corn output with an upbeat 76 million mt, 3.8 million mt above January’s estimate. The only caveat to this number has to be weather; the current rainfall, which is delaying harvest in Mato Grosso, has the potential to delay or even prevent planting of the follow-on or safrhina corn crop. Either event will impact final output.

• In contrast, the Argentine conditions continue with above average temperatures and below average precipitation adding to crop stresses. Crop forecaster, Lanworth, cut their estimate of soybean output to 51.6 million mt from 53.1 million mt and corn was also cut 0.5 million mt to 25.1 million mt. The firm cited the on-going dry conditions as a major factor in their changed forecast. The USDA cut their forecast on Friday in their February WASDE Crop Report by 1 million mt from 54 million mt to 53 million mt but this change was offset by a equal boost to Brazil’s estimated production, up from 82.5 million mt to 83.5 million mt.

• Brussels granted a further 443,000 mt wheat export licences bringing the season to date total to 12.97 million mt, compared with last year’s 10.278 million mt. That is a full 2.692 million mt ahead of last year (26.2%). In the light of everything, Russian, Argentina, Black Sea, Brazil, EU (is there much left?) we sometimes wonder if it is us, or the rest of the world, that is going mad!

• Finally, in the UK we are seeing grain being moved longer distances as some northwestern destinations are taking delivery of wheat

• Today’s major headline is that the UK has purchased US soft red winter wheat for the first time in many a year. The shipment, believed to be 25,000 mt for March, reflects the tight position which exists in the UK, particularly in relation to quality grain. Whilst this may well be a first in 20 or so years, the fact that it is taking place highlights the value which exists in US grain right now. Last weekend’s Egyptian tender also highlighted this, particularly the one very cheap offer which was snapped up. It is difficult to see where alternative offers, even at a higher price level, are likely to be made as other traditional exporters have seemingly run short on supplies.

• The talk earlier this week of Brazil’s requirement to import as well as the Russian import needs, coupled with today’s news has still not rallied wheat either in there US or Europe where prices are (at the time of writing) still in the red.

• US weekly export figures were released today as follows:

    Wheat: 300,800 mt which was within estimates of 300 to 500,000 mt.
    Corn: 160,400 mt which was within estimates of 100 to 300,000 mt.
    Soybeans: 1,667,100 mt which was above estimates of 900,000 to 1,300,000 mt.
    Soybean meal: 196,300 mt which was above estimates of 75 to 175,000 mt.
    Soybean oil: 25,600 mt which was within estimates of 10 to 30,000 mt.

• Brazil’s Conab has pitched into the plethora of crop estimates with its latest numbers; soybean output for Brazil is estimated at 83.4 million mt as a consequence of increased acres to 27.6 million ha. The latest estimate is an increase of 0.8 million mt over the January estimate. The outlook for corn was also upbeat with an estimate of 76 million mt, an increase over January’s number of 3.8 million mt. The caveat has to be weather – extreme wetness in the Mato Grosso region is creating a fungal disease problem, which is treatable with fungicides, but will affect yield to some degree. However, it is the impact of a delayed harvest which will then impact the safrhina or follow-on corn crop and potentially impact yields.

• Argentina’s BAGE estimates the 2012/13 corn acreage to be 3.7 million ha, which is an increase of 0.3 million ha from their previous figure. This, added to the outlook from Brazil, if it all materialises without a hiccup will potentially provide some much needed to relief to tight global stocks.

• Finally, Brussels granted a further 443,000 mt wheat export licences bringing the season to date total to 12.97 million mt, compared with last year’s 10.278 million mt. That is a full 2.692 million mt ahead of last year (26.2%). In the light of everything, Russian, Argentina, Black Sea, Brazil, EU (is there much left?) we sometimes wonder if it is us or the rest of the world which is going mad!

• Today we have a plethora of varying news, suggestions that Brazilian dock workers are to strike, weather items and guestimates of what might or might not be planted in the US this coming season.

• Soy complex and corn markets are a touch lower and wheat is just in the green. Last night’s commentary on Brazil’s import requirement appears to be confirmed, with suggestions that the tariff exempted grain is (unsurprisingly) likely to originate in US or Canada, and an indication that the exemption could extend from yesterdays 1 million mt to 2 million mt depending upon Argentina’s final crop outturn. The current USDA forecast for Argentine wheat output is 11 million mt, which compares with 2011/12 at 15.5 million mt. It is our belief that 2012/13 outturn will be below the USDA number, possibly as low as 9 million mt, which will present an issue for Brazil as far as available import tonnage is concerned.

• In terms of looking forward, private forecaster Lanworth suggested that US corn production could reach a record 14.5 billion bu in the coming year with yield reaching 163.1 bu/acre on average, if the weather plays ball. They added that recent weather anomalies, warmer summer temperatures in particular, threatened yield levels. Their first estimate of 2013 output left yield below “potential” at 155.6 bu/acre, well above last year’s 123.4 level, but behind trend. Their belief that planted acres will reach near record levels, and crop potential will be elevated despite the risks presented by dry and warm conditions leaves a degree of uncertainty over final season ending stock levels.

• The firm continued their latest projections, issued today, and cut Argentine soybean output to 51.6 million mt from 53.1 million mt and corn output was also cut to 25.1 million mt from 25.6 million mt. Brazilian output was also cut, this time to 75.6 million mt on corn, a reduction on 200,000 mt, and soybeans to 80.3 million mt, a reduction of 600,000 mt. The reductions were blamed on dry conditions extending into February were a key component of their reduced forecast.

• Todays slight easing in markets on corn and soybeans is attributed to improved rain offerings in the forecast, a stark contrast to the preceding comments; perhaps illustrating the fickle and short term nature of markets right now!

• The US Congressional Budget Office released its estimates of US new crop supply and demand with corn acres at 97 million and yield at 161.5 bu/acre, suggesting output at 14.5 billion bu which would leave end stocks at 1.8 billion bu. Soybean acres were put at 77 million with yield at 43.5 bu/acre, output calculates at 3.3 billion bu and end stocks at 281 million bu. Wheat numbers yielded 2.2 billion bu output and 744 million bu as end stocks. The numbers were caveated with “subject to normal weather (whatever that is these days) and trend line yield”. Clearly we would not wish to trade these numbers today, but they give an indication of potential and what we may expect if variations from “norm” in terms of growing conditions should materialise.

• Clearly an interesting day in terms of what might happen in coming months! Perhaps more interesting will be to look back in a few months and see who got it right and who got it wrong!

• With CBOT corn and wheat trading lower and soybeans either side of unchanged we have looked for the key drivers of direction, as usual, and exhibit a degree of surprise particularly at the decline in wheat. The Russian government seemingly approved the removal of their much discussed grain import duty, albeit effective from April, and only lasting until the end of June – a full three months! Unsurprisingly this has been construed negatively and markets dipped as a result in both Chicago, Paris and London.

• Soy complex gains have been tempered by Argentine crop stresses which are forecast to continue with the key issue being heat. Temperatures are forecast some 12℃ above average hindering development, added to this rainfall is pretty scarce in the forecast over the coming week to ten days. We reiterate our comments of some weeks ago when we suggested that the USDA’s forecast output (Jan ’13 report) for Argentinian corn and soybeans at 28 million mt and 54 million mt respectively appear high right now. Reuters pre USDA survey estimates would tend to agree with our view, the average corn estimate is 26.261 million mt and soybean estimate is 53.095 million mt.

• The decline in wheat prices was also aided and abetted by improved forecast rainfall prospects across key US producing states of Kansas and Oklahoma. A good soaking in the two top wheat producing states would go a long way to assist in relief of months long subsoil moisture deficit and aid the needy crop. Whether or not the forecasters are right will be borne out in the next week, but for sure the growers extremely keen for serious rainfall, and soon.

• Late news today alerted us to Brazil’s AgMin anticipating up to 1 million mt non Mercosur wheat in the April to July period (Membership of the bloc is Argentina, Brazil, Paraguay, Uruguay and Venezuela with associate status awarded to Chile, Colombia, Ecuador and Peru). This represents an additional pressure on global stocks at a time when they remain under pressure.

• On Saturday it was announced that Egypt’s GASC had purchased another 60,000 mt wheat, this time for early March shipment, the award was (unsurprisingly) to the US. There was only one offer of French wheat, which at nearly $50 FOB over US soft red equated (after freight) to nearly $37 higher than the winning offer. The purchase was 60,000 mt, and aside from th tonnage purchased, the next best US offers were some $11/mt higher. We view the tonnage purchased as extremely good value, particularly in the light of everything else which was offered.

• Early trade today was higher, supported by dryness in Argentina and S Brazil, also by Informa Economics’ reduced forecast for overall S American soybean output in the coming season. Argentine tonnage was put at 54.5 million mt (down 3.9 million mt mom) and Brazil’s at 84 million mt (increased 1.1 million mt mom), cumulative S American output reduced by 2.8 million mt.

• Brazil’s AgRural forecast for their soybean crop was at 81.2 million mt, down a million mt mom as a consequence of rain reduced yields in the Matto Grosso region.

• The recent soy complex price rally has lifted levels to 2013 highs with some beginning to see the December highs as the next price target, for front month soybeans $15.01/bu and  soybean meal prices targets are $455/ton.

• Eyes are now on the USDA’s Friday report where it is anticipated that US corn and soybean domestic consumption levels will be under close scrutiny whereas export numbers are certainly not pressured and may even be reduced to offset potentially increased domestic usage.

• The run up to January month end saw a degree of profit taking and some downward momentum in prices although it is probably fair to say that price charts look more friendly right now than they have done for some considerable time.

• The debate as to the most newsworthy item today falls between two stools; S American weather and Russian stocks. The conditions in Argentina are less than favourable with too much heat and too little precipitation, the forecast continues in much the same vein. The dominant high-pressure systems responsible continue to follow one after another and push northwards into S Brazil leaving it dry also. These dry conditions coupled with increased crop moisture demand, as the crops grow, conspire together to add to stress pressures.

• There has been discussion this week of the Argentine soybean crop failing to reach the 50 million mt mark, and corn coming in below 24 million mt. However, these figures are by no means a done deal right now. Private forecaster, Lanworth, this week reduced their Argentine estimates on both soybeans and corn to 53.1 and 25.6 million mt respectively. Their estimates for Brazilian output were increased from a month ago to 80.9 million mt for soybeans and 75.8 million mt for corn.

• Harvest is getting under way in the key Brazilian soybean growing state of Matto Grosso, albeit with interruptions for rain, and early reports are suggesting yields are lower than previously anticipated. Once again it is probably too early to draw conclusions bearing in mind the recent experience of the US soybean harvest, which showed an outturn above that which was anticipated.

• The Russian debacle continues with the “on-again, off-again” situation of the 5% grain import duty. Discussions this week have included a possible “reduction” in duty rather than a total withdrawal, and almost in the same breath total withdrawal has been reported as “possible”. It seems that either way changes will be made, and fairly soon. Our suggestion last week that there is a requirement for 2 million mt of wheat to be imported in order to reach the next harvest has some added credibility as close to half a million mt has been imported to December so far, and there seems to be an acceptance that in excess of 1.2 million mt will be required.

• Brussels granted further wheat export licences amounting to 480,000 mt this week, bringing the season total to 12.527 million mt, over 2.5 million mt (25.8%) ahead of the same time last year. The figures reported last week showed exports to be 23.4% ahead; seemingly EU export pace is increasing rather than slowing down to preserve much needed end of season stocks!

• Without wishing to be over repetitious, we struggle in the light of limited or no Black Sea stocks, Russia (a traditional exporter) needing to import, Argentine wheat problems, the pace of EU exports leaving something less that absolutely necessary stocks, added to which fund net short positions in Chicago wheat (the world’s cheapest) could well result in a short covering rally – we would not wish to have any risk to potential explosive upside prices.

• On the other hand (and readers should be grateful we only have two hands!), if the US plants the much discussed 99 million plus acres of corn and trend line yields are achieved, which is by far a foregone conclusion in view of the on-going drought conditions, there will be undoubted downward pressure not only on corn prices but also wheat prices. Timing of such pressure, if it materialises, will be at or around the US corn harvest period.