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

Weekly update 21 June 2013

• Following yesterday’s US hot weather scare and price hikes we have today seen cooler weather forecasts and some easing of price levels. Seemingly those who bought yesterday were selling today! Maybe that sums up the state of the market right now.

• Concerns were elevated over the Chinese economy when their manufacturing index fell to a nine month low suggesting the manufacturing sector and potentially the economy is declining. The knock on effect in energies, metals and equities has also been in declining prices. Unconfirmed rumours of a Chinese bank in difficulties circulated throughout the day added to which bank run stories started to circulate. It must be restated that these are, as yet, unsubstantiated but in the good old “no smoke without fire” tradition, the stories carry a degree of impact.

• Brussels issued wheat export licences totalling 226,626 mt bringing the season total to 20.528 million mt, which is  5.883 million mt ahead of last year (40.2%).

• We continue to expect volatility to remain relatively high ahead of next week’s stocks and seedings report.

• Markets in Chicago rallied on what we believe at present to be relatively lightweight news. The sale by France of 200,000 mt wheat, to China, for August delivery and a forecast for hot weather in the US next week. Our reason for considering these items as “lightweight” is that a 200,000 mt wheat sale is pretty small in the whole scheme of things, and hot weather in summer is far from unusual! That said, it underlines the nervousness which pervades markets right now, the 28th June stocks and seeding report is looming. Traders with short positions attempting to square up appeared to be sufficient to rally markets in something of a “panic” style. There is a feeling that China may, once again, have been somewhat misleading in its information concerning its wheat crop and if this is the case we may well see market dynamics changing. A substantial wheat import programme by China was not in the forecast.

• Informa Economics released reduced acreage estimates for US 2013 corn, soybean and spring wheat plantings, corn at 95.262 million (down from 96.827), soybeans at 77.756 (down from 78.286) and spring wheat at 11.791 (down from 12.401). Corn yield was left unchanged at 160.9 bu/acre and output was forecast at a record 14.078 billion bu with soybean output estimated at 3.366 billion bu. These numbers cams as little surprise to the market and created little in the way of reaction.

• In summary, we have a nervous market, a key report (as far as stocks is concerned, the market seems sanguine about acres), jitters over weather following a delayed planting season and now the Chinese “curved ball” over wheat demand. It appears likely that we will see some marked volatility, particularly in old crop which will drag new crop along for the ride. Buckle up!

• The potential for the dispute between Argentine farmers and the government to escalate to a higher plane is possibly one of the greatest market risks right now. The potential for interruption to soybean and product exports as well as grains is very real if the conflict extends. The Argentine government has formally declined to negotiate on the basis that the strike is motivated by a political agenda and farm unions haver declared a willingness to escalate action in an effort to force the government’s hand, or at least bring them to the negotiation table. The impact on the stricken Argentine economy is far from positive! Whilst it is reported that soybean stocks in export ports are “sufficient”, corn stocks are far from comfortable. As an example it would appear that the number of truck arrivals in the key port of Rosario were around 500 due to the strike and road blocks, this compares with a norm of something in excess of 4,000. If strike action is protracted this will not only affect exports but also the local crush.

• The next biggest market risk is likely to be weather and its impact on the developing crops in the northern hemisphere. US conditions appear to be improving and likely to assist in completion of planting as well as aiding crop development which may repair some of the damage done by planting delays. The specifics contained in yesterday’s planting report left us with concerns over the lengthy delay in soybean plantings, particularly in states such as the Dakotas and Minnesota, where we see a potential risk from early frost damage prior to crop maturity later in the season. Having said that, corn and soybean crop condition generally leaves little for concern at present.

• Reading between the lines it would appear that there will be corn acres unseeded as a result of weather conditions, and at least some of these will switch to soybeans with others being put into the preventative planting programme. In addition there would seem to be the opportunity for additional acres as a result of farmers in the Delta planting soybeans as a follow-on crop after early harvested wheat, particularly as soil moisture levels look advantageous right now. The potential is for soybean acres to reach around 79 million with the consequent knock on cap on new season prices – if it all goes to plan!

• Finally, Soc Gen issued a report warning of a significant price correction on corn as well as reduced soybean prices largely as a result of S American supplies. They continued that the record S American soybean crop was displacing demand from US sources and would likely continue through to Sep ’13. The likelihood of nearby premiums continuing would lessen they added. As always, time will tell if they are correct!

• US weather allowed markets to start the week lower, with soil moisture levels undoubtedly sufficient to assist development of newly planted soybeans and corn as well as aiding wheat crops. Wheat and corn turned higher later in the day finishing in positive territory. Soybean prices were pressured by improved weather and planting expectations. Old crop corn appears to be the pinch point with tight supplies keeping cash prices and premiums pressured, which has impacted the corresponding futures contract.

• In Europe MATIF wheat prices continued lower hitting 12 month lows as harvest starts in southern regions. It is still too early to draw conclusions from early harvest data on either yield or quality and the trade is watching both with interest.

• The UK harvest is still a long way off and with new crop barley trading at £17 to £20 below feed grade wheat, it is attracting a lot of interest from consumers. We have heard that there will likely be surplus feed grade wheat in northern France in the coming season, and this could well provide an interesting dynamic to feed grain markets in the weeks to come.That said, few users are rushing to buy into what can only be described as significantly cheaper new crop prices than have been seen in recent times.

• Old crop wheat prices are under significant pressure with consumers using corn and barley when and where available. The LIFFE old crop contract (Jul ’13) has retreated significantly in recent weeks to its current discount to new crop, something that was almost unthinkable three months ago.

• Clearly we have an interesting market with old crop dynamics playing out their dying weeks.

• We reported on S American soybean exports last week, vessel line-up in major ports continues to underline the strong demand which exceeds shipment volumes. Whilst May export volumes were record large we expect to see a continued strong pace through June as US supplies are too tight to meet importer’s needs. Soybean meal export volumes from S America are still insufficient to relieve the supply tightness experienced in many importing countries. Perhaps this has been the reason for US export levels to remain reasonably high leading to the high July CBOT contract price levels.

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

Weekly Update 14 June 2013

• Following yesterday’s USDA report markets soybean and corn markets continued to decline with wheat just managing to close in positive territory having traded in the red for much of the session.

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

Wheat; 427,300 mt which is within estimates of 400,000-600,000 mt.
Corn; 149,500 mt which is below estimates of 250,000-450,000 mt.
Soybeans; 480,700 mt which is within estimates of 450,000-600,000 mt.
Soybean Meal; 144,800 mt which is within estimates of 125,000-300,000 mt.
Soybean Oil; 13,200 mt which is within estimates of 10,000-20,000 mt.

• Brussels granted wheat export certificates totalling 200,303 mt bringing the season total up to 20,301,597 mt. This exceeds last year’s figure by 5.831 million mt (40.3%) with three weeks of the season to go.

• Today, Goldman Sachs declared corn and soybeans to be potentially extremely lucrative short trades for investors suggesting that increased confidence in global restocking would lead to lower price levels citing targets reduced by $1.75/bu for corn and as much as $2.50/bu for soybeans. The only obstacle in the way of such price reductions being weather they said! Large S American harvests and weak global consumption pointed towards further price weakness and possibly even lower price levels. Deutsche Bank joined the party by suggesting corn prices could well be seen as low as $3.60/bu although the 28 June planting report could mitigate such a level if the weather failed to cooperate. Rabobank suggested that despite the bearish report yesterday a more realistic scenario would materialise after the late June planting report.

• Questions have been asked over some of yesterday’s numbers, specifically Russian wheat export levels; an averaged output figure of 52 million mt with domestic consumption at 38 million mt leaves 14 million mt, government purchasing for stock replenishment amounting to 4 million mt leaves an exportable surplus of 10 million mt – less than the USDA’s 17 million mt figure (reduced by a million from last month). That said, we look towards 28 June and the stocks and seedings report which is likely to provide more detail and, in turn, the potential for surprise.

• We continue to believe that rallies in old crop prices on the back of tight supplies will impact and drag new crop higher to some extent, this will in our view create selling opportunities which will become apparent when more abundant new crop supplies become freely available and prices decline.

To download our PDF summary of today’s USDA report please click on the links below:

USDA June 13 Corn

USDA June 13 Soybeans

USDA June 13 Wheat

• US crop conditions, which were reported last night, showed corn planting as expected at 95% complete, up from 91% week on week but below the five year average of 98%. Soybeans are now 71% complete, again as expected, up from 57% week on week and bellow the five year average of 84%. Spring wheat was reported to be 87% planted, behind the five year average of 96% but up from 80% week on week. Winter wheat condition is marginally changed week on week with the proportion rated as good/excellent now standing at 31% down from 32%, and the poor/very poor proportions now 42% compared with 43% last week.

• The price swings seen in the past two trading days have primarily mirrored the nervousness surrounding the final stage of spring plantings in the US. On Friday new-crop futures prices of corn and soybeans had still rallied on concern about additional planting delays from overly wet weather. However, much of these gains were given back on Monday when it turned out that weather conditions in the US soybean and corn belt were dryer over the weekend than had been thought. The weather outlook for this week is generally favourable, which should allow US farmers to focus on catching up with soybean plantings, now that corn sowing is largely complete.

• Without doubt, this year corn and soybeans are partly planted beyond the optimum time in the US, but the net effect on the crop sizes is uncertain. Some 1 to 3 million acres of corn acres are likely to be shifted to soybeans, somewhat mitigating the prospective recovery of US corn supplies in 2013/14. The soybean area will probably be larger than intended, but this may be partly offset by the detrimental effect of late plantings on yields. But first of all, the still significant planting delays in the key soybean producing states of Illinois and Iowa must be made up for.

• Funds have accumulated large long positions in soybeans on the CBOT, possibly exerting price pressure once the concern about inadequate planting conditions eases. The monthly USDA report to be released tomorrow is unlikely to include new indications on soybean crop prospects and should have only minor relevance for our markets. The necessary pronounced decline of export demand for US soybeans has occurred in recent weeks, probably requiring only minor revisions to the already extremely low US soybean carry-out projections for 2012/13.

• Farmers in Argentina are about to embark on a week long strike in protest over government policies. The timing is, at present, uncertain but the intention is that farmers will not sell their crops, meat or dairy products and will also blockade routes to export points in an effort to get their point across. Clearly, if this action goes ahead there will be disruption not only to exports but to domestic soybean crush ability, albeit of limited duration. Supplies of foodstuffs to the domestic market will be unaffected it was announced by the four largest farmer unions who appear to be coordinating the action.

• Oil World, has reported a weather dependent recovery in global oilseed production of 28 million mt in 2013/14. They commented upon the uncertainties associated with the anomalies which have been apparent in weather in recent years, also that such uncertainty could significantly affect output. In short, it appears that we are to continue to experience volatility at greater levels than may be considered “normal”.

• The report highlighted the global 2013/14 soybean crop at 284 million mt, an increase of 18.1 million mt on 2012/13 (6.8%). Global soybean end stocks were forecast to grow by 13.4 million mt to 74.6 million mt. The US output was put at 92 million mt, up from 82.05 million mt in 2012/13, Brazil’s 2013/14 figure was 84 million mt, up from 81.51 and Argentina’s output at 52.3 million mt is also an increase from 2012/13′s 48.5 million mt. Stock to usage ratios (t 31st August) were seen to improve in 2013/14 to 27.6%, an improvement over the last two seasons.

• S American soybean exports in May reached over 11 million mt, up just over 1.5 million mt than in May 2012. It is likely the figure would have been higher if late May weather had permitted vessel loadings. Brazil accounted for just short of 8 million mt of the total figure (a record) and brings their Jan/May soybean export total up to 19.6 million mt, 1.1 million mt more than last year.

• Tomorrow’s WASDE report will be released 17:00 UK time and we will update as soon as practical.

• Markets eased Monday as adverse weather fears started to ease not only in the US but also FSU regions and crop prospects, and potential global restocking, weighed on prices. US crop planting progress was expected to see a further improvement as dryer conditions have permitted further fieldwork. Official data will be released later today, and we will forward this when available tomorrow.

• In Russia the AgMin reported that they expect the 2013/14 grain crop to reach 95 million mt as a result of timely rainfall. Of this, 54.5 million mt is expected to be wheat, a bigger tonnage than forecast last week by SovEcon (50 – 52 million mt). Ukraine’;s AgMin forecast their 2013/14 grain crop at 53 to 54 million mt, a 17% improvement year on year. Grain exports were forecast at 25 to 27 million mt, up from 23 million mt year on year. The wheat crop was seen at 20 million mt, an increase from 15.8 million mt year on year. Exports of wheat are anticipated as high as 9 million mt, an increase from 7 million mt year on year. The good news is that the export season will start without restriction, or at least that is how things look right now! Ukrainian corn output is seen at a record 27 to 28 million mt, an increase from 20.9 million mt year on year, and exports are seen as high as 14 million mt.

• Harvest is under way in Russia some two or three weeks early with initial out turns looking good and prices reported to be declining fast. Contrastingly, in Europe we are seeing a return to cooler sand wetter conditions and the prospect for harvest is that it will be some two or three weeks later than normal. Paris wheat futures markets hit their lowest level in almost a year in thin trade.

• We look forward to Wednesday’s USDA monthly WASDE report although at this time we expect little in the way of market turning surprises.