• The latest US winter wheat crop condition was reported with poor/very poor classification at 35%, a 2% jump from a week ago whilst good/excellent dropped a corresponding 2% to 33%. The five year average for poor/very poor is 10%, good/excellent is 64%. Progress IS being made with the crop 14% headed, which compares with 8% last week and the five year average of 29%; interestingly last year was at 55%.

• Spring wheat, as we have reported, was 12% planted, a gain from last week’s 7% but this fares badly against 37% as the five year average and 70% last year. The emerged crop is, unsurprisingly, only 3% compared with the average of 10% and last year’s 26%.

• The data comes as little surprise following the extended winter with particularly cold conditions coupled with rains delaying planting and hampering development of the planted crops. Perhaps on a more worrying note, the forecast for further freezing temperatures, possibly reaching as far south as the Texas Panhandle, later in the week, has left wheat markets lead prices to the upside as funds cover particularly large net short positions.

• The area which remains unplanted when compared with normal extends to a massive 31 million acres and the prospect of not only a further freeze but also rains extending to some 4 or 5 inches will do little to boost the planted acres in the immediate term. Corn plantings at 5% compared with a more normal 31%, and little expectation that the figure will reach double digit percentages by the weekend leave little doubt that 2013 will rank as the slowest starts on record.

• Front month MATIF wheat put in strong gains closing up €4.00, albeit off the highs of the day; on a Sterling adjusted basis the closing levels put the Paris May ’13 contract at a premium of a shade above £20.00 to its London counterpart. This is the largest Paris premium we have seen for some while.

• To download a summary of the US wheat condition statistics please click on the link below:

W:E 28 Apr 13 Wheat Condition

• Monday markets in Chicago have shown an upward surge of some significance as cold and wet weather forecasts continue to plague central areas of the US and add to the delays in corn and soybean planting pace. In addition, the conditions which will follow will not be conducive to getting newly planted crops off to a good start.

• Fund buying has been in evidence amid large volume trade today and the size of net fund shorts in both corn and wheat is likely to be sharply reduced at the close of play tonight.

• To add to the woes of US farmers, the northern spring wheat region is at the mercy of flooding from sudden and strong warming that has melted thick snow cover. Reported temperatures in North Dakota, the second largest wheat state after Kansas, reached 21℃ (70℉), significantly higher than the 2℃ (36℉) of last week. What impact this will have on crop development is, as yet, unknown.The strength of Chicago is likely to spill over into early trade in Europe when markets open on Tuesday as gains did not fully match those in the US.

• Finally, dry conditions continue to prevail across wheat growing regions in western Russia, Ukraine and Australia. It is too early to suggest that crops in these regions are at any risk at the moment, but the need for moisture is becoming important and the weather should be watched closely for rainfall, or its lack, in coming weeks.

• Whilst we in the UK bask in warmer temperatures this week, having seen little in the way of frost, wheat markets have turned lower; old crop is down £4.75 (Jul ’13 19 Apr to 25 Apr) and new crop contracts have lost as much as £5.45 over the same period (Mar ’14). Paris contracts have also eased with the main feature being the premium to the London contracts holds over MATIF in the new crop position. Mar and May ’14 London compared with a Sterling adjusted MATIF are more than £11.00/mt over the Paris contracts. This is, no doubt, a reflection of the continued import parity pricing likely to be in place for a subsequent season.

• In contrast, the US has continued to suffer further cold and freezing conditions raising fears for their wheat crops and delaying corn planting almost to record late dates. In addition, the exceptionally late snow cover across Canada and US is set to create flooding as warmer weather arrives. It would appear likely that there will be a rapid onset of higher temperatures given the fact that the season is later, the sun higher in the sky, and a slow orderly thaw benefiting soil moisture is less likely than potential flood conditions.

• One impact of the cold conditions in the US has been that corn planting has started slow, with only 4% of the crop in the ground as of last Sunday. This is some 14% behind the five-year average, although improved forecasts would leave us to expect a rapid pace as soon as conditions permit. The correlation between planting date and final yield is not fully proven but 10th May is an oft-used “cut-off” date, and that is approaching fast. Perhaps more important is the fact that harvest will most likely not be early, and this year, with extremely tight stocks, is hardly the best of timing.

• This week’s US export figures were disappointingly low, missing trade estimates by some considerable way. We have seen evidence of ever increasing cash basis levels, particularly in soybeans which could be one of the underlying deterrents to additional export sales as many US consumers are having difficulty with origination right now. It is reported that levels as high as $1.10 over July futures has been paid, a further increase on last week’s near record levels. Tight supplies and reluctant sellers have combined to create the explosive cash premiums.

• EU wheat export certificates were issued for 288,201 mt, which is lower than recent weeks, but still close to 5 million mt ahead of the same time last season (37.5%). One explanation for this was that the US was cheaper, although that was not borne out by actual sales from the US! The return of Ukraine to the global market following the removal of their export cap was not the opening of floodgates either, it is expected that only around 200,000 mt will be exportable as domestic prices are higher than can be achieved by exporters.

• The continuing bird flu story in China is perhaps rising a notch on the concern scale; the H7N9 variant is now said to have infected 108 people and killed 22. According to the WHO, the new strain is “one of the most lethal” viruses although human-to-human transmission has not, as yet, been proven. Reports of a Taiwanese traveler returning home after visiting China testing positive for the virus were circulating earlier in the week. This is the first reported case of the infection outside mainland China. Concern over a further mutation of the virus that would allow human-to-human spread is high. There are also a large number of what we believe to be highly speculative reports circulating in which there are claims of huge declines in poultry meat consumption. We take these with a pinch of salt at this time, and note that crush margins in China remain high, at least for now.

• The USDA has today released its weekly export figures as detailed below:

Wheat 306,300 mt; which is below estimates of 600,000-1 million mt
Corn 335,900 mt; which is below estimates of 350,000-700,000 mt
Soybeans 422,200 mt; 700,000-950,000 mt
Soybean meal 218,600 mt; which is below estimates of 120,000-380,000
Soybean Oil 1,700 mt; which is below estimates of zero – 15,000 mt

• The figures can only be described as disappointing, as evidenced by the big “miss” from estimated levels across all products. It is possible that the ever increasing cash basis levels, particularly in soybeans, which have hit the figures. It is reported that levels as high as $1.10 over July futures has been paid, a further increase on last week’s levels. Tight supplies and reluctant sellers have combined to create the tightening cash premiums.

• Global weather news leaves us believing that Russia and Ukraine are in need of rain soon if soil moisture issues are to be avoided and crop output compromised. Australia also features with similar dry conditions and a need for timely rains.

• The new crop premium which London wheat holds above the MATIF, when adjusted back to Sterling, has risen again today. March and May 2014 contracts are sitting at £11.78 and £11.29 respectively whilst the Nov ’13 and Jan ’14 contracts hold a smaller premium at £5.70 and £6.12. This is a reflection of the likely reduced output in the UK for 2013/14 and the potential that net imports will continue to be the order of the day for a further year.

• Finally, UK GDP figures, released today by the Office for National Statistics, show that we have avoided a triple dip recession with a growth rate for Q1 2013 at 0.3%; this figure being just sufficient to reverse the fall in Q4 2012. Growth over the 12 month period to March 2013 reached a staggering 0.6% growth. Maybe we should now look to see the UK’s AAA rating restored by the end of next week!

• The major news item today is a continuation of the bird flu story in China where the H7N9 variant is now said to have infected 108 people and killed 22. According to the WHO the new strain is “one of the most lethal” viruses although human to human transmission has not, as yet, been proven. Reports of a Taiwanese traveller returning home after visiting China testing positive for the virus were circulating yesterday. This is the first reported case of the infection outside mainland China. Concern over a further mutation of the virus which would allow human to human spread is high.

• Reuters report that the Ukraine has lifted its restrictions on wheat exports, imposed last year following drought reduced harvests, with immediate effect. However, it is anticipated that export volumes will be limited to around 200,000 mt, of which some 80,000 mt are already at ports as domestic price levels being paid by flour millers are better than bids by exporters. The export cap was imposed in the light of a sub 16 million mt harvest in the nation, which consumes around 12 million mt. Ministry data shows export volumes have reached close to 6.5 million mt this season; improved conditions so far have led to crop forecasters predicting the coming wheat crop at about 20 million mt.

• In Canada the latest planting intentions survey by StatsCan indicates a reduced canola (rapeseed) acreage, the first such drop since 2006. The 11.1% reduction in canola was largely to the benefit of increased wheat acres, which were shown by the survey to be increased by 12.3%. However, a cautionary note should be sounded, extensive late snow cover across much of the country could well provide a catalyst for plans to change.

• Once again freezing conditions are adding to hard red wheat crop stress as temperatures drop to minus 7℃ (18℉). The potential for yield loss as a result of multiple such freezes is high; depending upon location across such a wide growing area the crop is in various growth stages and estimates for overall losses cover a broad range. Regardless of estimates, one thing appears true, and that is that losses will be higher than normal.

• CBOT prices have suffered losses as a warmer and drier weather forecast has brought the bears (now out of hibernation) to the forefront. US corn plantings, which have been delayed by cold weather, are at their lowest level on record at 4% compared to the five year average of 16%. Why bearish then? The answer appears to lie with the improved weather forecast and hope that the key 10th May date, after which yield can be negatively impacted.

• US winter wheat condition has reached 33% poor/very poor, an increase of 2% vs. a week ago and 10% last year, with good/very good dropping a point to 35%, last year’s level was 63%. Clearly we are seeing a very different crop condition from last year, weather in coming weeks will be the key determinant of final output.

• European wheat prices were also pressured, no doubt US losses assisted, but new crop levels succumbed to improved weather prospects. Russia and Ukraine however, have a less favourable outlook right now as dry conditions and slow spring planting progress continue to put a lid on potential output. Australian wheat planting looks as if it will take place under very dry conditions once again with follow up “rain dances” to aid crop germination and development.

• As previously reported, the markets are now seeming to be all about the weather.

• The week opens in weak mood with agri markets both sides of “the pond” displaying weaker tendencies. Pricing boards today are noticeable by the glare of red numbers staring back at traders as price levels decline once again. Little comfort to those who have physical cover in place, or is it? Cash basis levels, or the price one has to pay to secure physical delivery of grains and oilseeds when compared with corresponding futures markets, have increased markedly. CBOT vs. cash soybean prices are displaying a marked divergence, one which is creating a stir at the present time. $0.80 to $1.00/bu premiums for physical soybeans over futures levels are at the very top end of “normal” levels and leave huge question marks over the effectiveness of a deliverable futures contract where both cash and futures prices should converge and meet at the time of futures contract expiry. With big cash premiums in evidence it would be easy to suggest taking delivery of futures contracts to elicit best value; despite the administrative burden. There has been a suggestion that default might be a feature, we doubt that this could be the case otherwise the integrity of futures markets would be destroyed overnight. With this in mind it could well be that we see a massive squeeze on the shorts as the May ’13 contract approaches the end of its life; i.e. Prices could well push substantially higher as the shorts struggle to exit their positions. If this is a feature, it is highly likely that we could see a repetition in the July ’13 contract as that reaches expiry.

• In the news we hear that the Chinese bird flu situation is far from improving; at the weekend China reported over 100 cases of human H7N9 influenza with some 20 dead. In what appears to be a country wide reaction, the price of chicken meat has fallen over the last three weeks. In areas specifically affected by the virus price drops have been as much as 50%. There is now a strong expectation that corn and soybean imports will decline and prices are being pressured as a result. The potential impact could well extend to new crop northern hemisphere prices as Chinese commitment to imports extends forward some way; this will add to perceived “big US crop pressures” and the path to lower new crop is being discussed quite widely by the bears.

• Delayed US plantings, particularly in corn, are coming to the fore and raising the spectre of a late harvest, which will add pressure to the already tight old crop supply position. The previously mentioned record cash basis levels confirm this; added to net fund short positions in both wheat and corn as of last week, and a far from big net long in soybeans, we could be in position for a “perfect storm” should the funds decide to revert to more usual position size in coming days or weeks.

• The week can best be described as “messy” with little in the way of defining news, old stories continue to be regurgitated and rehashed but have stimulated limited price direction.

• Europe and US weather patterns are almost polarised (in very general terms) with Europe much warmer and the US suffering continuing cold and freezing conditions. Whilst European conditions are changing, for the better, the on-going deep freeze in the US has been raising concern over damage to hard red wheat crops. In reality it is probably too soon to confirm or quantify damage from freezing, but added to the persistent drought and sub-soil moisture deficit, there is a very real risk in the making.

• Stratégie Grains have lowered their latest EU 2013/14 wheat output figure, for the fourth consecutive month, by ½ million mt to 131.06 million mt with the UK contribution reduced yet again, this time by 330,000 mt. The conditions in the autumn were, as we have previously mentioned, dreadful and this left around 25% of the winter crop unplanted. The much-publicised weather so far this year has done little, if anything, to aid the development of what was planted and has delayed spring crop planting too. UK wheat output was put at 11.78 million mt, the lowest in 12 years. Without doubt the weather is now the key determinant of final output; good or bad will affect the numbers correspondingly. Many are erring on the side of caution with the UK trade probably closer to 11 million mt at this moment in time.

• In the same report EU spring barley hopes for 2013/14 have also been hit following delayed plantings with output forecast at 29.29 million mt, a full 2 million mt behind last year. Total EU 2013/14 barley output, which is projected at 54.22 million mt, is just over ½ million mt behind last year. Interestingly the UK barley crop is forecast at close to 1 million mt above last year with a total output projected at 6.48 million mt, of which 1¼ million mt is scheduled to be from spring planted crops.

• Brussels granted another big week with wheat export licenses totalling 435,553 mt, which is 4.954 million mt ahead of last season (plus 37.9%). Our “cracked record” commentary remains in place, the only addition being that the end of season position becomes yet more critical.

• Finally, Egypt continues to create interest with their president, Mohammed Morsi, due to visit Moscow, presumably in an attempt to negotiate a route to further wheat supplies. Prior to the visit, the Russian Grain Union have opposed any loans of government wheat stocks to Egypt whose stock levels were this week reported at 71 days of consumption (1.74 million mt). Given the view that production estimates are already optimistic and because of restricted availability of basic inputs, we could well be looking at “emergency measures” becoming necessary to resolve what is increasingly looking like a shortage of wheat within the nation.

• The US has issued its weekly export numbers as follows:

Wheat; 1,674,600 mt, which is above estimates of 130,000-825,000 mt.
Corn; 417,200 mt, which is within estimates of 200,000-750,000 mt.
Soybeans; 566,800 mt, which is within estimates of 150,000-1 million mt.
Soybean meal; 315,200 mt, which is within estimates of50,000-425,000 mt.
Soybean oil; 8,200 mt, which is within estimates of zero to 15,000 mt.

• The surprise figure has to be wheat at more than double the top estimate, but the number did little to trigger any bullishness within the market. The cumulative export figures leave soybeans within 100,000 mt of the USDA’s full crop year figure. Given delays in Brazilian ports and Argentine soybeans proving to be uncompetitive, it would seem that the pressure on US soybean stocks will remain, at least for the time being. Meal exports remain similarly ahead and this will ensure pressure remains on the crush, and in turn on soybean supplies. The remainder of this season is shaping up to be extremely interesting!

• Stratégie Grains have lowered their latest EU 2013/14 wheat output figure, for the fourth consecutive month, by ½million mt to 131.06 million mt with the UK contribution reduced yet again, this time by 330,000 mt. The conditions in the autumn were, as we have previously mentioned, dreadful and this left around 25% of the winter crop unplanted. The much publicised weather so far this year has done little, if anything, to aid the development of what was planted, and has delayed spring crop planting too. The figure for UK wheat was put at 11.78 million mt, the lowest in 12 years. Without doubt the weather is now the key determinant of final output; good or bad will affect the numbers correspondingly. Many are erring on the side of caution with the UK trade probably closer to 11 million mt at this moment in time.

• In the same report EU spring barley hopes for 2013/14 have also been hit following delayed plantings with output forecast at 29.29 million mt, a full 2 million mt behind last year. Total EU 2013/14 barley output, which is projected at 54.22 million mt is just over ½million mt behind last year. Interestingly the UK barley crop is forecast at close to 1 million mt above last year with a total output projected at 6.48 million mt, of which 1¼million mt is scheduled to be from spring planted crops.

• Today has seen Chicago wheat markets take the lead almost from the off with $0.12 gains throughout the afternoon (UK time) only to see that erode towards the end of the session. Concerns over the potential for extensive flooding when the extensive snows eventually thaw could well have been the early upside trigger. The prospect of that happening imminently does not seem likely given the continuation of cold conditions for another week, specifically west of the Mississippi River where soils are reported to remain frozen to deep levels.

• In stark contrast European weather is warming fast, raising soil temperatures and helping early season crop development as well as aiding the weather delayed spring planting programme.

• Russian grain production is projected at 90-92 million mt according to the latest AgMin forecast, although the Grain Union offers a wider spread at 90-95 million mt. The month on month decline in estimated output is attributed to reduced wheat output projections in the drought stricken key southern district. Regardless, the latest estimates are a big improvement on last year’s severely depleted harvest following significant drought damage. The weather conditions across both Russia and Ukraine look set fair, warm and dry, over the next couple of weeks assisting spring crop development.

• Egypt continues to create interest with their president, Mohammed Morsi, due to visit Moscow, presumably in an attempt to negotiate a route to further wheat supplies. Prior to the visit the Russian Grain Union have opposed any loans of government wheat stocks to Egypt who’s stock levels were today reported at 71 days of consumption (1.74 million mt). Given the view that production estimates are already optimistic, because of restricted availability of basic inputs, we could well be looking at “emergency measures” becoming necessary to resolve what is increasingly looking like a shortage of wheat within the nation.