• A look back over recent years data show that in the days following the March stocks and seeding report markets have a strong tendency to some extreme volatility, the difficulty is in objectively picking the correct direction! Bullish, or bearish, which way will it go tomorrow? One level of difficulty which we face here in Europe is that by the time we digest the figures the game will be over and the sop shut for a four day weekend as Ester kicks in. By the time we return on Tuesday it will all be old news and markets will have reached their new trading levels.

• Trade estimates for the March 1st stocks are as follows (billion bu):

                    Average            Range
Corn            5.030            4.916 – 5.248
Soybeans    0.947            0.912 – 1.059
Wheat         1.167            1.010 – 1.238

• Interestingly, the spread of estimates is biggest in corn with 332 million bu, followed by wheat at 228 million bu and soybeans bringing up the rear at 147 million bu. Clearly, with such a range there are going to be winners and losers as with all markets and we await tomorrow’s report with interest.

• US hard red winter wheat producers in the top three states report a worsening of crop condition with 27% reaching good/excellent and 34% poor/very poor with 39% reported as fair. Soil moisture has declined in recent weeks with little rainfall in the region in the last fortnight. It appears that Texas has seen particularly arid conditions as growers report 75% short or very short of topsoil moisture.

• Drought at this time is particularly bad for wheat crop development as the plant is jointing and in need of ample soil moisture to assist development of essential flag leaf formation in coming weeks. Added to the soil moisture issue, the recent cold snap has hit plants well past dormancy, and as such more susceptible to damage. It is highly possible that secondary tillering, if it occurs, will compensate for current damage, but if we have a repetition of these cold conditions the resultant damage is likely to be more permanent and yield reducing.

• We move another day closer to Thursday’s influential stocks and planting report with weather attempting to delay plantings in the US. The implication of delayed corn planting is that it defers the pollination phase until the hotter weather and, as we saw last year, damage to output can be serious if temperatures remain in the 100℉ or higher zone.

• EU weather also remains in the headlines with northern and central Europe receiving cold temperatures and sufficient moisture in the form of rain, hail or snow to create waterlogged conditions sufficient to both delay plantings and also harvest. Added to the huge pace of exports and consequent tightening end season stocks it looks as if Europe is heading towards an increasingly squeezed position.

• In a semi comical moment we heard that the Brazilian judiciary were attempting to impose fines upon truckers for illegal parking on the highway, when in reality they are queuing to deliver their consignments of soybeans into the well documented congested port zones. The fact that this is really happening makes it “semi” rather than “totally” comical! However, on a more serious note, the issue is adding further pressure to an extremely pressured situation and momentum back to US supplies is growing. This, added to the possibility of a bullish report on Thursday, could well provide strong upside price movements, which will not have much of a time related relief valve given the Easter weekend break.

• In other news, Oil World today reported their latest forecasts with the Argentine soybean crop at 48.5 million mt, which is reduced from 50 million mt a month ago (but still up from 39.7 last year). The Brazilian crop was forecast at 81.3 million mt, down 700,000 mt last month, but an improvement on last year’s 66.4 million mt. To contrast this, AgroConsult reported their outlook for the Brazilian crop at 84.4 million mt, which is 200,000 mt up on their last month’s estimate.

• CBOT markets have started the week in lacklustre style with only corn showing any sign of strength, but that evidence so far this week is minimal. Perhaps this is unsurprising ahead of Thursday’s stocks and seeding reports; predicting what will be reported has become a better spectator rather than participative sport these days. Trying to second guess what will be reported has not met with huge success so fat this year. That said, we do have a view, and we favour tightening stocks in soybeans and corn, which we have mentioned once or twice before!

• Seemingly the UK is not the only place to be impacted by snowfall this weekend, the US Plains and Midwest have also been the recipient of significant snowfall as well as extreme cold. Hardly classic spring weather and potentially cause for delays in both sowing and harvest which is hardly what the globally tight markets are needing right now.

• On a brighter note, at least the US drought which began last year and extended well into the winter has had some relief from rain and snowfall. The downside is that we will be looking at delayed seeding, potentially delayed harvest and the consequent extension of usage which will further stretch already stretched corn and soybean stocks. There appears little likelihood of a reduction in corn grind for ethanol because of mandated inclusion, and feeders (poultry in particular) have no current reason to ease back as prices remain subdued – for now. We remain vigilant for “triggers” which will change the current benign pricing scenario – maybe Thursday will bring one of them to the attention of the trade.

• How things change! On this, the third day of Spring we wake up to blizzard conditions across much of northern UK and ten inches of snow with more to come in the next 24 hours. Southern regions, whilst not experiencing snowfall, are being hit with further torrential rainfall which will hit farmers who were starting to see soils drying out sufficiently to allow fieldwork. This unseasonal turn of events will further delay spring planting and potentially push harvest back to some degree. This has already been voiced as a concern from a pan-European perspective and at a time when predicted end of season stock levels are already stretched close to breaking point. Any increase in consumption as a consequence of an extended season will add to the looming problem.

• London and Paris wheat markets have seen some gains this week, reaching levels last seen over a month ago. Whilst following stronger CBOT levels, the fundamentals this side of the “pond” have assisted the uplift. Recent overhead resistance in May ’13 Paris wheat has been breached to the upside and should provide some degree of support going forward. Physical markets in Europe have seen some good support on a cash basis and premiums over futures have remained strong. Domestic demand in both the UK and Europe has been good, as has export demand, all adding to positive sentiment.

• In a more global context we heard earlier in the week that China was reportedly cancelling up to 2 million mt of soybeans on the pretext that shipping delays in Brazilian ports had placed sellers in a default position. This news was unsubstantiated and we subsequently picked up on reports of the Chinese government selling substantial stocks of state owned beans to allow crushing to continue in the face of shipping delays. Chinese crush margins remain strongly positive and it appears that meal demand too is buoyant. Consequently, our conclusions are that rumours have been planted to encourage lower prices thereby permitting purchases to be made at advantageous prices or switching of supplies back to the US. In addition China will, in due course, seek to replenish their stockpiles; presumably when cheaper and more abundant supplies are available.

• The Cypriot “bank raid” continues to rumble on with no resolve since erupting last weekend. Banks remain closed, ostensibly to prevent a run on cash, and debate continues back and forth as to whether smaller depositors will or won’t be taxed. Whilst Cyprus may not be the most significant player in the EU, the potential precedent and its impact on others is not being overlooked. Other countries and their depositors are, not unreasonably, nervous of their own position. The Eurozone crisis, which has slipped from headline news in recent weeks, has once again moved back into a prominent position.

• In conclusion, we see continued pressure on old crop grains, and maintain our view that gaps in cover should be few and far between. Protein (soybean meal) price does have the feeling that it is vulnerable to downside just as soon as S American supplies become freely available and port congestion issues subside – hopefully sooner rather than later. The USDA stocks and plantings reports, issued next week, may well trigger some old crop upside if our view on stocks is reflected in the numbers. Certainly it has felt as if CBOT markets have been trading with this in mind this week.

• Following on from yesterday we can report that China is supposedly selling significant quantities of state owned soybean stocks to crushers to assist depleted supplies caused by Brazilian port congestion and associated shipment delays. Sales from state reserves will need to be replaced in due course, presumably when prices have eased – whenever that may be!

• Interestingly, ahead of the eagerly anticipated USDA report, we are starting to see a plethora of acreage and output forecasts, the latest Reuters reported farm survey talks of the largest corn area since 1936 at 97.43 million acres. The same survey also reports intentions to plant a record soybean acreage at 79.09 million acres, a 2.5% increase from last year. Clearly, in the wake of stocks which are close to record lows the need to rebuild stocks has never been stronger. For survey numbers to become reality it is important for both prices and weather to play their part in the equation, and it is entirely possible that wheat could well lose out in the overall scheme of things.

• The International Grains Council (IGC) have put forward their view that world wheat output will rise in 2013/14 to a four year high with a corresponding increases in end stocks of 3 million mt, this number is a drop in the ocean compared with the 20 million mt decline seen in 2012/13.

• The UK is forecast to return to cold and wintery conditions tomorrow with significant snowfall predicted for large swathes of the country further adding to the gloomy outlook for autumn sown crops and further delaying spring sowing. The ongoing cold also leaves us pessimistic as far as the prospect of early harvest is concerned.

• The US it would seem is similarly experiencing frost, snow and below average temperatures, which are deepening frozen soil conditions rather than bringing on the spring thaw. These conditions can be a mixed blessing, in some areas the increased snow cover could well add to overall precipitation totals aiding eventual crop development, in others spring sowing delays may detract from overall output, As the saying goes, “you pay your money, and take your choice!”

• US weekly exports were reported as follows:

Wheat: 573,300 mt which was within estimates of 550,000 to 1.12 million mt
Corn: 275,500 mt which was within estimates of 50,000 to 650,000 mt
Soybeans; 341,900 mt which was below estimates of 450,000 to 1 million mt
Soybean meal: 143,400 mt which was above estimates of 40,000 to 120,000 mt
Soybean Oil: 19,600 mt which was above estimates of zero to 15,000 mt

• We have see another day of gains in London & Paris wheat markets, May ’13 gaining £4.40/mt and €8.50/mt respectively. Clearly there has been some “following” of US markets, but technical resistance levels in Paris (€240.00 basis May ’13) have been broken, encouraging higher levels. Cash bids (and premiums) have remained strong and as the prospect of an early harvest recedes in the face of ongoing cold and wet conditions, current record low forecast stocks will be further pressured by an extended season. Both France and Germany are seeing strong domestic demand and export interest adding additional pressures.

• In the US early interest was evident in both soybean and wheat markets as buyers sought early value; cash bids for corn continued to rise and traders started to exhibit signs of concern over the potential for bullish numbers in the end March stock report, which is due to be released on 28 March.

• Reuters commodity forecasting arm, Lanworth, has released its latest estimates, the highlights including an anticipated record US soybean area at 81.3 million acres with 3.455 billion bu output, a slight reduction from their last estimate. Corn was forecast at 96.5 million acres with output pegged at 13.64 billion bu, also a slight reduction on last forecasts. The report stated that flat profitability in corn as well as changed crop rotation and a return to “normal” spring weather were key reasons for the increase in soybean acres. We have picked up elsewhere that as a result of last year’s “corn on corn” yielding disappointingly and fears of continued dry conditions may well be additional reasons for growers to favour soybeans over corn this coming season.

• In the same report, Lanworth increased its forecast of Argentine corn production to 25.5 million mt, a 600,000 mt increase, and also increased its outlook for soybean output to 50.5 million mt, an increase of 1.1 million mt. Brazil’s soybean output was forecast at 81.1 million mt, a modest 300,000 mt increase, whereas corn output was cut 0.5 million mt to 76.4 million mt.

• Finally, Reuters news reports that India is engaged in discussion with Egypt over the potential to supply wheat. India has large residual stocks following a series of good crops with output exceeding domestic demand. This has left India in need of additional sales in order to make space for the forthcoming harvest next month, which is expected to be in excess of 92 million mt; domestic demand is estimated at about 76 million mt, which by our calculation is a surplus of 16 million mt.

• Markets have taken a slightly more pragmatic approach to the Cypriot crisis, which appears to be heading towards a “softer” raid upon deposits belonging to smaller savers. Until a decision is reached, the banks remain closed to prevent a run on cash withdrawals, and this is expected to last until Thursday. Russian opposition has been noticeable, probably due to the fact that it transpires that around one third of all deposits in Cypriot banks are Russian owned! The IMF is supportive of the somewhat modified proposition, presumably as are smaller depositors!

• Australia’s ABARES (Australian Bureau of Agriculture and Resource Economics) and the UN (United Nations) have forecast global wheat output to grow to its second highest level on record, 690 million mt, they believe a return to more normal growing conditions, as far as moisture and temperature are concerned, is on the cards. Global end stocks are similarly estimated to rise, an additional 2 million mt is predicted to be added to bring the figure to 176 million mt. An overall increase in food supply is seen with rice output heading for a record according to the UN, and record US soybean and corn crops predicted by the USDA.

• Reuters news wires have been active with reports of up to 2 million mt of soybean shipments due to be cancelled by China following shipping delays in Brazil as a result of the much publicised port congestion. Supplier default is cited as due cause for the cancellations, and Chinese buyers are presumably not keen to extend shipment periods on, what are now, expensive purchases. It must be pointed out that the reports are, at this time, unsubstantiated, and possibly rumour only in an attempt to get prices down sufficiently to permit Brazilian soybeans to be swapped into US. Crush margins remain strong in China and demand appears to continue to be strong, so news of such wholesale cancellations could well be tactical rather than factual.

• Following on from yesterday’s Egypt news, there are reports today that the government are discussing plans to ration subsidised bread; we believe this to be linked to the ongoing IMF loan discussions. When added to the upcoming strike by bakers due to high wheat/flour prices, we could be looking at another politically explosive situation – remember the “Arab Spring” which was triggered by high grain/flour/bread prices?

• One thing is for sure, and that is we continue to live in an interesting world.

• The weekend news has been dominated by reports that Cyprus may be forced by Eurozone finance ministers into making depositors in Cypriot banks share in the costs of the latest bailout. The Euro fell to its lowest vs the US$ this year and the rise in the US$ has left commodities under pressure throughout the day. Reaction has largely been one of a “flight to safety” as gold has risen over 1% in value, being viewed as a “safe haven” – for now!

• At the same time the IMF is in talks with Egypt with a view to making loans, necessary to allow government backing to wheat importers, when they make purchases (notably absent in recent times). The nation’s past refusal of loans is believed to be because of the stigma associated with implied austerity measures and the potential domestic disturbances which could follow. We have referred in recent days to the news that Egypt has been publicly stating it has large wheat stocks, and added our sceptical view that this could well be a “smokescreen” to mask the true reason for their lack of recent wheat tenders.

• Reuters today reported that Ukraine may be about to extend its current (informal) grain export cap leaving the government free to exert greater control over domestic price levels. The limits imposed on 2012/13 export volumes were brought about by a combination of drought reducing overall output and growth in foreign demand around the world, both of which conspired to potentially leave Ukraine with insufficient stocks to last until the 2013 harvest.

• Brazil’s top soybean producing state, Mato Grosso, has benefitted from its recent dry spell which has permitted swift progress for the harvest, but could well prove to be the undoing of the “safrinha”, or second, crop of corn which is traditionally planted following the soybean harvest. Soil moisture levels, essential for successful germination and development, have suffered following the recent dry period. March, a traditionally very wet month in Mato Grosso, has seen little, if any rainfall so far. Pre-planting estimates of Brazilian next corn harvest have been similar to last year’s bumper crop, which reached a record 73.5 million mt. Unless rainfall materialises, and soon, these sort of output levels will be unlikely as dry conditions will not permit the crop to get as good a start as it received last season.

• Weekly overview.

• Last Friday’s USDA report was, when the dust settled, a “something and nothing” affair leaving us and most of the trade looking forward to the stocks and prospective plantings reports to be issued on 28th March. Whether or not the report grasps the nettle and addresses the issue of extremely tight US soybean and corn stocks remains to be seen.

• It appears that some signs of corn stock tightness are creeping into the marketplace and prices are reacting accordingly. Cash corn prices have reflected strong premiums over CBOT levels for some time now and the marketplace is reporting stronger volumes of wheat being fed due to corn tightness. This reflected in Mar ’13 CBOT corn’s strong premium over May and we feel that the May ’13 contract is likely to exhibit similar tendencies as time progresses.

• Soybeans, on the other hand, have looked somewhat less strong presumably as a result of the Brazilian harvest which is progressing well. Debate on overall output continues to flow both up and down, but there is little doubt that whichever way we view it, the harvest will be a big one. Whether it is 80 83 million mt is probably of secondary importance. The big issue really is the ability of Brazil to cope with its logistical issues and finally be able to export the crop.

• We hear of many troublesome issues within Brazil, all conspiring to put a spanner in the export corridor. Vehicles travel in convoy on poorly maintained roads from the producing heartlands, mainly to assist each other when road surfaces prevent safe passage. Journey times which took two or three days now takes up to four or five! This is consistently adding cost with queues to discharge vehicles at ports being reported at 25km or more and delays of up to 24 hours when actually discharging at the port. None of these factors assist the cause or provide confidence to end consumers so there is little wonder the vessel line up and loading delays of 60 days plus are encouraging buyers to look elsewhere.

• The “elsewhere” in discussion just happens to be the US. We did pick up that some 8 or 9 further cargoes of soybeans could have been sold recently but were not because of the lack of availability of suitable freight. Seemingly the huge line up at Brazilian ports is having an impact upon the number of vessels offered for charter. At the same time, the tight US stock position has little room for additional exports and current low (in relative terms) prices continue to fail to convince consumers that there is a potential supply issue.

• Stratégie Grains this week reduced their outlook for EU soft wheat output by 600,000 mt with a revised estimate at 131.6 million mt largely as a result of the poor UK crop prospects. The UK’s 2013 harvest is predicted at 12.108 million mt, down from 12.417 million mt a month ago. On the other hand barley output for the UK is estimated at 1.1 million mt higher, largely as a result of increased spring plantings following the wet autumn planting season which saw large acreages unplanted. Rains left an estimated 25% of the planned acreage unplanted, this is a figure that approaches record levels. On-going cold conditions have left the crop in a delayed state with the possibility that harvest may similarly be delayed. We are starting to see early indications of new crop barley discounts making an appearance at what appear to be attractive levels in comparison to wheat.

• Finally, Brussels granted a further 564,000 mt of wheat export licences, which brings the season to date total up to 15.779 million mt. This is 3.854 million mt ahead of last season at the same time; or in percentage terms, 32.3% ahead of last season. We continue to have concerns over the end of season stocks levels, and if we have any harvest delays extending the period of old crop consumption, the tightness will be exacerbated with potentially serious consequences.

• The CBOT soybean market continues to be pressured by the pace of harvest in Brazil, grains in the form of wheat and corn are in positive territory as some short position holders are taking cover and wheat feeding levels are reportedly on the increase.

• Additional pressure on wheat is seen from a prospective strong government buyer in Russia to replenish stocks released to ease rising domestic price levels this season. This has the potential to limit or cap to some degree the traditionally strong early season export volumes which are associated with Russia and also the Ukraine.

• Strategie Grains reduced their outlook for EU soft wheat output by 600,000 mt with a revised estimate at 131.6 million mt largely as a result of the poor UK crop prospects. The UK’s 2013 harvest is predicted at 12.108 million mt, down from 12.417 million mt a month ago. On the other hand barley output for the UK is estimated at 1.1 million mt higher, largely as a result of increased spring plantings following the wet autumn planting season which saw large acreages unplanted. An estimated 25% of the planned acreage was left unplanted by rains which approached record levels. Ongoing cold conditions have left the crop in a delayed state with the possibility that harvest may similarly delayed. We are seeing early indications of new crop barley discounts making an appearance at what seem to be attractive levels in comparison to wheat.

• Brussels granted a further 564,000 mt of wheat export licences, which brings the season to date total up to 15.779 million mt. This is 3.854 million mt ahead of last season at the same time; or in percentage terms this is 32.3% ahead of last season. We continue to have concerns over the end of season stocks levels, and if we have any harvest delay, the tightness will be exacerbated with potentially serious consequences.

• US export figures showed a strong week for wheat, corn and soybeans all of which were above estimates, soybean meal was below the lower end of estimate whilst oil exports were within estimated volumes. Wheat figures were in excess of 1 million mt which has added support to the market today.