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Weekly Grains Update 31 May 2013

• Probably the biggest single news item today was the report of a field of unapproved GM white wheat being “found” in Oregon, USA. Japan has suspended imports for the time being on the news, and the EU has kindly agreed to “block any US GM wheat”.Despite reassurance from the USDA that the food chain will be unaffected there will certainly be a “blip” in US white wheat sales.

• Today has been a “down day” in Chicago, albeit slightly, it is possible that the trade is coming to terms with the potential size of new crop harvests around the world despite the short term headlines of planting delay and ongoing   unfavourable weather. Many wise heads will be suggesting that the time is not yet right to panic over acreages and weather issues, there will be plenty of time in coming months to digest these issues. Month end profit taking and fund rolling will also likely have taken its toll on prices.

• The US continues to struggle with stormy and wet conditions in the midwest and great plains with both Iowa and North Dakota close to record May rainfall totals. In this case the old adage of “rain makes grain” is likely not the case but there is still time for a turn of fortune and warm dry conditions to make up for the soggy start to the season. However, the forecasts are calling for continued wet conditions in the great plains and western corn belt although east of the Mississippi is looking closer to normal precipitation. A glimmer of hope may well come from the fact that temperatures are not lower, allowing steady soil moisture evaporation and crop transpiration which help avoid overly wet field conditions.

• News from the Ukraine brings more hope in the form of improved rainfall in the eastern region. Forecasts for the area, including Russia, are both cooler and wetter which will assist crops which were subject to hot and dry conditions.

• Brussels has issued weekly wheat export certificates for 291,591 mt, which is more than was issued last week. The season total is now 19,741,262 mt, which is above last year by 5.571 million mt (39.3%). Once again it appears that there are still buyers in the market looking for physical delivery of available grains.

• Yesterday’s crop condition and plantings report showed another week of substantial progress despite what may have at first appeared to be less than optimal conditions. The progress is a further tribute to farmers and their tenacity in the face of difficulties. Spring wheat plantings at 79% are only 7 points behind average, corn plantings jumped from 71% last week to 86% completed this week, a mere 4% behind average whilst soybeans reached 44% (from 24% last week) some way behind the 61% average figure. Interesting is the fact that the corn emerged figure is 54% vs. 67% average, this may confound the harbingers of doom who are calling for significant yield reductions due to late planting. It would appear that conditions have been warm and moist enough to allow rapid germination of the late planted crop.

• Key to the total corn acreage this season will be the ability of farmers to continue planting and there are question marks over this at present. The date most commonly referred to as an “absolute” for final corn planting is 10 June, and it is expected that any corn acres not in the ground by then will be switched to soybeans. The weather forecast for the coming 10 to 14 days is not fantastic right now and there are doubts over the final 10% of corn plantings. This potential is providing some support to corn and we will be watching with interest in the coming days.

• The hard red wheat condition has not improved, continued deterioration throughout the spring has been the pattern. The poor/very poor crop proportion has increased by 1% since last week reaching 42% whilst the good/excellent rating remains at 31%. The end of May crop condition figures represent the fourth worst condition on record for the top 7 producing states with only 2006, 1996 and 1989 showing worse condition. It has to be borne in  ind that the drought affected area is likely to show a decline in harvested area as abandonment rises. Unprofitable acres will either be ploughed in and replanted with an alternate crop or grazed for fodder by cattle. Early indications are that the 2013 harvested area is likely to experience some 20% due to the drought hit High Plains and notably western Texas.

• According to Hamburg based Oil World, Brazil’s pace of soybean exports is reaching record levels with May anticipated to hit 8.7 million mt as a lower end estimate, and possibly top out at a massive 9.0 million mt. This figure compares with a mere 7.3 million mt last year! Despite the slow start to the season caused by logistical issues it is expected that over 50% of the season total has been exported.

• According to Russia’s SovEcon the 2013 wheat crop is forecast at 50 million mt, up from 38 million mt last year. Their suggested export figure is 19 million mt compared with 11 million mt last year and an earlier forecast of 16 million mt. Our view is slightly more guarded given the potential for government purchases of some 5 million mt to replenish stocks which were released earlier in the season to curb escalating domestic prices.

• The ongoing cold coupled with wetter than average conditions across western Europe leave concern over the wheat crop, not in terms of quantity but over quality. The potential for a larger feed wheat crop is beginning to look very real and, if the global corn crop meets its initial early potential, prices will likely come under some serious pressure.

To download the latest crop progress report file in PDF format please click on the link below:

Crop progress 28 May 13

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Weekly update 25 May 2013

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

Wheat; 952,600 mt which is above estimates of 300,000-600,000 mt.
Corn; 446,100 mt which is within estimates of 200,000-500,000 mt.
Soybeans; 1,022,400 mt which is above estimates of 350,000-500,000 mt.
Soybean Meal; 256,600 mt which is above estimates of 50,000-200,000 mt.
Soybean Oil; 9,600 mt which is within estimates of zero to 15,000 mt.

• Brussels has issued weekly wheat export certificates for 273,042 mt, which brings the season total to 19,449,671 mt. This is above last year by 5.492 million mt (39.4%).

• The strike by port workers in Argentina’s Rosario, which started on Monday, looks likely to extend into next week. Whilst strikes in the country are far from uncommon, they are usually resolved quite quickly and this interruption to exports will be unwelcome at this key point in the season.

• Thursday has seen a robust move higher in wheat, corn and the soy complex both in Chicago and in Europe with quote boards displaying a sharp green colour. Early short covering of soybeans and meal, reportedly by Chinese buyers, triggered gains which appear to have followed through all day. Fund short covering in wheat added support and corn appears to have been dragged along for the ride. Stronger than estimated US export sales in wheat,soybeans and soybean meal added to the firm tone. However, the detail in the exports is important, old crop sales of 131,200 mt are significant in the light of the tightness in the US soybean and meal balance sheet. There are reports of further S American soybean cargoes loading for the US, which emphasises this point.

• Our view on matters remains pretty much unchanged, tight old crop supplies can result (and have resulted) in upward price moves. These moves have lent support to new crop prices which have risen, and we see these moves as selling opportunities rather than a market to chase higher at this time.

• Markets have found some positive ground today both here, in Europe, and in the US. Early news was thin on the ground but Reuters crop forecaster, Lanworth, issued its crop estimates which put the USDA figures into the “yesterday’s news” category! World 2013/14 wheat output at 694 million mt is below the USDA’s 701.1 million mt; global corn output of 965 million mt is marginally below the USDA’s figure of 965.94 million mt and global soybean output of 286 million mt is slightly over the USDA’s 285.5  million mt.

• Key to their lower wheat number is reduced output in the US, Australia and Ukraine. Corn output numbers are lower as a result of reduced Brazilian production.

• Subsequently the markets received something of a boost from a jump in ethanol production to its highest level in 11 months. Added to feed consumer purchases of corn the market has found some support which transferred across to wheat and soybeans.

• Weather is once again an issue, today’s UK forecast includes snow on higher ground in coming days, which when coupled with strong winds is expected to produce a local wind chill temperature equivalent to minus 12℃ (10℉) four weeks prior to mid summer! Little wonder crops are lagging behind average development.

• Oil World today cut its outlook for world rapeseed output by 1.6 million mt mom to 63.99 million mt. Reduced output in the UK and France is cited as the reason, the EU crop is forecast to hit 19.89 million mt (down from 20.2 last month) with the UK at 1.9 million mt, a five year low.

• Key US crop data released last night showed the massive effort put in by farmers to reach a corn planted figure of 71%, which compares with 28% last week and a five year average of 79%. The “catch up” is impressive to say the least, and has had a degree of impact on prices which have dropped again today.

• Additional crop data showed soybean plantings at 24%, which compares with 6% last week and the five year average of 42%. Spring wheat numbers reached 67%, up from 43% last week and compares with the five year average of 76%. All in all this is an impressive performance from the farmer who has clearly worked very long and hard and is reaping the rewards for some big investment in state of the arty equipment to take advantage of the window which has materialised this week.

• On the other hand, winter wheat condition has declined once again with the proportion of the crop rated good/excellent dropping a point to 31%, which compares with 58% this time last year. The proportion rated as poor/very poor is 41%, up from 39% last week and only 14% last year.

• The news has been taken by the market as encouraging with virtually all prices displaying lower numbers at the close this evening.

• Reuters today reported a port workers strike in the key Argentine port of Rosario. Monday saw the stoppage over pay and the inevitable slowing of exports. Whilst this sort of interruption is not uncommon, it is anticipated to be short lived. The country has an inflation rate of some 25% which creates an “interesting” dynamic for the farmer – why sell crops for cash which is worth ¼ less in a year when you can hold the physical crop and maintain value over the same period. The key period for exports is right now as the US hits its low water mark in stocks pre 2013 harvest, it is therefore in the interests of the farmer and the nation to resume trade flows without undue delay.

• Stratégie Grains today reduced their outlook for soft wheat production in France, albeit slightly, to 36.141 million mt, the highest number since 2008. The weather conditions have, like the UK, been cold and wet leaving the crop in a delayed state amounting to some 7 to 10 days as opposed the UK’s estimated three week delay.

• As we have said previously, the weather is key to markets in coming weeks and pretty much everything we are looking at right now suggests that this remains the case.

• To download the latest crop progress report file in PDF format please click on the link below:

Crop progress 21 May 13

• European grain markets followed their downward trend of last week closing lower again today with old crop July hitting prices not seen since last June. Nerves failed on news from IKAR (Russia’s Institute for Agri Studies) that the Russian crop would reach nearly 54 million mt, marginally less than latest USDA estimated at 56 million mt, and significantly above last year’s drought hit 37.7 million mt. Whilst southern Russia still suffers from dry conditions, Krasnodar, one of the key regions, has benefitted from recent rains. Latest weather forecasts suggest further rain and, as we all know, “rain makes grain”, and that is how the market has reacted today.

• It must be borne in mind that the UK harvest is expected to be around three weeks late as a consequence of late planting, winter wetness and cold. The knock on effect will be to increase the demands upon old crop supplies by maybe three weeks, as a result we could well see a price surprise in the offing, particularly if weather here does not improve significantly – and soon.

• US crop progress figures, including planting data, will be released later today, and it is widely expected that corn planting will see a significant jump with some suggesting as much as 65-70% could well now be in the ground. We will get the figures at 21:00 UK time today.

• The week has seen old crop London wheat decline by just under £10.00/mt whilst new crop prices have shed as much as £2.65. Given last week’s USDA report we express some degree of surprise and wonder why the price moves are not the other way around I.e. old crop declining less than new. There is now no old crop comparison with MATIF  as the May contract has expired leaving Nov ’13 as the “front” month.

• Talking points today and in the immediate future all appear to be weather related, US corn plantings “will they or won’t they” and the switch from corn to soybean acres. Only time will tell…..

• Informa Economics have today projected 2013 US corn plantings at 96.8 million acres, which is lower than the USDA’s 97.3; soybean acres were projected to reach 78.3 million compared with the USDA’s 77.1. The company also forecast average 2013 yields at 160.9 bu/acre for corn (USDA 158) and soybeans43.9 (USDA 44.4).

• To download the weekly summary as a PDF file please click on the link below:

Weekly Update 17 May 2013