• The feature of today has been lacklustre trade as we hit month end and profit taking appears to be prevalent in relatively quiet markets. Weather reports remain benign and non-threatening and we would expect to see new crop values decline as we enter the new month of August.

• Reuters forecaster, Lanworth, pitched into the market today with its expectation of the 2013 US corn harvest raised to 14 billion bu with an average yield of 158..5 bu/acre. Their previous estimate was 13.65 billion bu. Global corn output was estimated at 965 million mt, an increase of 9 million mt within a two week time frame.

• US soybean production was eased back to 3.31 billion bu from 3.315 billion bu with a strong caveat regarding precipitation and temperatures in the coming month. Yield was predicted at 42.9 bu/acre.

• Global wheat and soybean output was left unchanged at 694 million mt and 283 million mt respectively although the Russian wheat harvest was reduced to 48.4 million mt from 50 million mt on account of warmer and dryer conditions, which could cap spring wheat output in the Volga District.

• EU wheat was the subject of some quality concern, which is not new news, and threatening storm conditions in northern Europe, again an ever present threat and we will lose little sleep over such commentary at this time.

• Today has seen the news that China’s six week shopping spree in which they have purchased 1.5 million mt of Australian wheat, and expect to purchase a season total of 3 to 4 million mt, add some further price support. Added to the 3.5 million mt already purchased from the USA, this brings the total to some 7 million mt.

• In its latest wheat tender today Egypt’s GASC has purchased 240,000 mt for delivery in Sep ’13, Romania and Ukraine with 120,000 mt each were, once again unsurprisingly, the successful origins. Interestingly in the line up of offers, nothing was on offer once again from the US, where FOB Gulf levels calculate some $10 to $15 per mt over Black Sea, French and E European levels. French and Russian offers were made but did not feature competitively this time round.

• Last night’s US crop condition report showed US winter wheat harvested at 81%, 6% above last week and just 1% off the five year average of 82%. Spring wheat condition was reported unchanged week on week at 68% good/excellent. In corn the crop condition was 63% good/excellent, again unchanged week on week but marginally ahead of trade expectation at 62%. The proportion of the crop reported to be silking was 71%, a gain from last week’s 43%. The soybean crop was seen as 63% good/excellent, one point behind trade expectation.

• One possible explanation for the lower soybean condition could be that late planting has left crops shallow rooted and susceptible to the dryer conditions, this despite the crop’s reputed tolerance of such conditions.

• Today saw further pressure on US ag markets with soybean complex numbers lower, although front month Aug ’13 made some strong gains on short covering (as we suggested may happen in our weekly wrap up). Corn ended slightly lower as stormy (aka wet) weather moved across the central plains and south mid-west. A lack of threatening weather conditions is the current driver, and looks set to last into mid-August. The predicted cooler temperatures bode well for pollination (compared with last year!) and there is some talk of 160 bu/acre plus as a national yield! The wheat market closed a touch higher as funds covered some short positions despite the price threat from the looming large corn crop.

• Closer to home the EU commission forecast the EU 2013 wheat crop at 131.7 million mt, an increase from 128.9 million mt month on month, barley output at 59.4 million mt was up from 58.3 million mt month on month and the 2013 corn crop was put at 70.9 million mt, again a month on month increase from 69.7 million mt previously.

• The latest numbers had a bearish impact on both London and Paris closing price levels. Recent stormy weather does not appear to have damaged crops (at this time) and quality reports are looking a touch more encouraging with improvement in protein levels in France as harvest progresses northwards. The french crop is reported to be 14% complete vs. 34% complete this time last year. Southern Germany is starting its wheat harvest, reports on yield and quality are too few and far between to take notice of at this time.

WEEKLY SUMMARY:

• We continue last week’s theme of benign weather conditions across key global cropping regions, which has been reflected in prices that have declined to the point of spectacular in nearby soybeans and soybean meal. The Aug ’13 soybean contract has declined from Monday’s high of just over $15.25/bu to the low (so far on Friday) of $13.30/bu. Aug ’13 Soybean meal has also declined similarly, from a high on Tuesday of close to $515/ton to below $430/ton having traded at the daily limit down three days in a row.

• One key explanation for such dramatic falls lies in recent consumer purchasing giving them cover through to new crop supplies becoming available, or very close to that time. Consequently we have seen long holders looking for buyers and, as we all know, a market with sellers and no buyers equals a falling market. This has been compounded by the big inverse in the market with the prospect of bountiful new crop supplies becoming available and the inevitable devaluation of old crop stocks once they have to compete with new crop supplies.

• An alternative suggestion combines the expiry of August options (today), which has pressured long holders and triggered selling, creating the opportunity consumers have been awaiting. We are of the feeling that, despite this opportunistic cover being taken, there are still gaps that will require filling. As we all know, there is always a rush to own the first of any new crop and should this be delayed (which is possible in view of the current cooler weather) we could well see another push to the upside in prices as buyers step in once again. In our opinion the old crop market has not quite yet “rolled over and died”, there is a strong possibility that we could see another demand driven spike up in old crop prices. This has, in turn, the ability to influence new crop to some extent.

• In addition we have seen weather conditions and forecasts into the first half of August looking favourable for corn pollination and development as well as being non-threatening, at this time, for soybean pod setting and filling. The improved crop outlook was reflected in the US Commodity Weather Group (CWG) forecasting the 2013 US corn yield at 159.5 bu/acre, which is above the USDA’s most recent estimate of 156.5 bu/acre, and significantly above last season’s drought impacted 123.4 bu/acre. Clearly the weather will continue to have to play its part in the development of the crop, and late-planted regions could be susceptible to damage if early frosts are a feature in late season weather. However, it is far too soon to speculate upon such downbeat issues at a time when things are looking positive.

•  Whilst falls in nearby soybeans and soybean meal have been spectacular, the new crop positions haver also declined but in a more controlled manner. Corn and wheat markets have also seen losses, but once again in a more ordered fashion. The wheat market has seen a good volume of international trade interest with Egypt, once again, buying Black sea origin wheat (Romania 120,000mt, Russia and Ukraine 60,000 mt each) in their third purchase of the month bringing their total to 720,000mt in July alone. Trade estimates for their annual imports stands at around 9 million mt, which contrasts with reports not many weeks ago that stocks were “adequate” and import requirements would be “minimal”. Earlier in the week we heard of reports that Egypt was hoping to negotiate deferred payment terms with Russian suppliers. Our reaction was typical of many, that being, our own personal history in the commercial trade would suggest that a request from a buyer with a questionable financial status for extended payment terms would likely receive a response unprintable in this report!

• In addition to Egypt’s presence in the market we have also seen deals done this week by Iraq, Algeria, Iran, Japan and South Korea. These deals added to the Egyptian tonnage add up to over 900,000 mt. With buying interest of this magnitude in an ostensibly “bearish” market together with on-going speculation over China’s real requirement for wheat imports, it is little wonder we see prices reluctant to “fall out of bed”.

• One further potential barrier to significant declines in wheat prices right now is the question mark over “quality” of the ongoing harvest. Early reports from southern and eastern Europe as well as Russia are highlighting lower than expected protein levels. Whilst it is too early to draw firm conclusions from initial samples, there is enough of a question to ensure protein premium levels remain high. A watchful eye needs to be kept on quality as harvest progresses northwards in coming weeks.

• Brussels this week granted wheat export licences totalling 486,296 mt, which brings the early season total to 1.128 million mt nearly 400,000 mt ahead of this time last year.

• In conclusion, we continue to look for additional downward pressure on prices in coming weeks, particularly as northern hemisphere harvests gather momentum and crop availability improves.

• It has been another day of heavy losses across agri markets with soybeans losing over 2.5% and soybean meal in excess of 4% in near positions. Losses across the grains were contained to less than 1% but a wall of red prices was clear at the close of business in Chicago. Wheat in both Paris and London also fell as did the MATIF rapeseed market. CBOT Aug ’13 soybean meal closed on its  limit down for the second successive day signalling a lack of buyers as the remaining long holders look (vainly) for a buyer. As we reported yesterday, cash basis levels have fallen sharply in the aftermath of consumers stepping into the market place taking cover leaving sellers struggling to find a home for their remaining old crop supplies.

• Technical pictures across soybeans, corn and wheat look pretty bearish with a clear argument for further significant price declines, which we always support if the fundamental picture is in agreement, which it appears to be right now. Weather patterns appear to be non-threatening with corn pollination temperatures favourable and a showery precipitation picture in the forecasts through into the first ten days of August. We will look for price support levels to come under pressure next week when trading resumes, tomorrow (Friday) could show something of a “|profit taking” bounce, which we would view as a further selling opportunity as things stand right now.

• The Commodity Weather Group (CWG) in the US has forecast 2013 corn yields even above the USDA’s latest 156.5 bu/acre at 159.5 bu/acre. This compares with last season’s drought ravaged 123.4 bu/acre.

• Brussels granted wheat export licences totalling 485.295 mt, which brings the season total to 1.128 million mt, which is close to 400,000 mt ahead of this time last year.

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

Wheat; 661,400 mt which is above estimates of 400,000-600,000 mt.
Corn; 489,900 mt which is below estimates of 700,000-1 million mt.
Soybeans; 793,500 mt which is above estimates of 400,000-650,000 mt.
Soybean Meal; 329,600 mt which is above estimates of 100,000-200,000 mt.
Soybean Oil; 3,200 mt which is within estimates of zero to 20,000 mt.

• Another day of lower prices in Chicago despite early attempts to reverse yesterday’s losses. Cash basis for soybeans would appear to have eased (or collapsed according to some) and corn movement in the tight old crop positions appears to be somewhat easier. The outlook for benign weather conditions is encouraging old crop supplies onto the market at last, taking advantage of what might well be the tail end of some historically high old vs. new crop premiums. Fund selling was, once again, reported to be a feature adding to the weaker tone.

• Egypt has, for the third time this month, bought 240,000 mt of wheat, all Black Sea origin, with Romania supplying half and the remainder split equally between Ukraine and Russia. This brings their purchase total for July to 720,000 mt. The price paid was reported to be over $4.00/mt above last week’s successful tender prices despite a drop in CBOT and Paris prices of more than 2% over the same time frame.

• There appears to be an increase in buyer interest in wheat with Algeria reported to have purchased 400,000 mt Nov ’13 shipment from France as well as Iraq, Bangladesh, South Korea, China, Jordan and Japan all reported to have concluded deals since the last Egyptian tender (according to Stratégie Grains). The lack of competition to Black Sea suppliers was evident in the line up of offers, presumably giving Black Sea sellers confidence to escalate their offer levels. Egypt is expected to import something in the region of 9 million mt of wheat in the 2013/14 season.

• Today the Russian Grain Union announced that it expected the Russian 2013 wheat crop at 45 to 48 million mt, well below the AgMin forecast of “a minimum 50 million mt”, which was issued earlier this week. This news, added to the belief that China will import more wheat than in previous years, has provided some support to wheat markets, in spirit if not in substance as closing levels were lower.

• In rapeseed, Oil World have reported Ukraine’s “excellent” yields being experienced across most regions as harvest reaches 90% complete. They forecast a crop of 2.1 to 2.2 million mt vs. 1.3 million mt last year. In the absence of export taxes (at this time) it is entirely feasible to anticipate exports amounting to nearly 2 million mt with a small volume being crushed domestically. Russian rapeseed harvest, although not as advanced, is reported to be yielding better than last year with an anticipated 1.3 to 1.4 million mt output vs. just over 1 million mt last year.

•  CBOT markets have been trading lower today with pricing boards displaying virtually wall to wall red prices. August soybeans are almost $0.50c/bu lower at the time of writing and Dec corn finally broke through $4.91/bu having tested it twice previously, today’s low (so far) being $4.82/bu. We understand soybean and corn cash basis levels eased somewhat after yesterday’s rally, farmer selling was evident at higher levels but appears to be slowing and funds were actively selling across all ags today.

• The cause of the break in prices would appear to be rainfall, a wetter outlook and below average temperatures which triggered selling, once corn broke its $4.91 support sell “stops” were triggered adding to the momentum. Today’s corn price levels were last seen in 2011 prior to the drought induced jump in prices amid reduced yields and output

• Elsewhere there are few, if any, serious weather concerns and we look for lower prices in coming weeks.

• In the US the winter wheat harvest was reported as 75% complete, 1% behind average whilst spring wheat condition rating fell 2 points to 68% good/excellent, which is an improvement on the 60% rating this time last year.

• In the EU grain yields have been given an uplift by the EU’s MARS (Monitoring Agricultural Resources Unit) thanks to the recently improved weather conditions across the region. Soft wheat yield has been forecast at 5.69 mt/ha, an increase from 5.5 month on month and 5.42 year on year. Barley also rises, to 4.78 mt/ha compared with 4.68 month on month and 4.38 year on year. Corn was forecast at 7.22 mt/ha, an increase from 7.13 Monday and 6.08 year on year. Finally, rapeseed yield was seen at 3.08 mt/ha, up from 3.02 month on month but marginally down from 3.11 year on year.

• Reuters today reported improved prospects for Russia’s wheat harvest so far this season and expects an output of no less the 50 million mt, which will help to replenish last season’s depleted stocks and potentially assist export potential. As of 22 July wheat harvested amounted to 25.4 million mt, yield at 2.98 mt/ha compared with 2.44 mt/ha  at the same time last season.

• Finally, the Egyptian story continues to roll on with reports that they are hoping to negotiate deferred payment terms with Russian suppliers! Having spent many years in a commercial business environment my reaction to a request from a buyer with questionable financial status for extended payment terms would not be printable in this report!

• A big jump in CBOT soybean prices was the feature of today as old crop prices made big gains. The whole soy complex followed August futures higher as it closed limit up at new contract highs. The August contract has gained $59.50 since the July contract expired, but is still $33.00 below the expiry price level. Clearly old crop pressure is still very much in evidence. The outlook remains for strong old crop futures as cash soybeans remain significantly more expensive than futures, we would (and do) believe that new crop prices are somewhat overvalued above $13.00, and anticipate this being addressed as and when the soybean harvest is underway.

• Interestingly, despite a strong soybean complex, corn once again tested recent lows ($4.91 basis Dec ’13) before closing a touch higher and positive rainfall was doubtless helpful as was the two week forecast which has little in the way off stress inducing heat or dry conditions. Wheat prices dipped lower alongside corn, and the Paris MATIF market closed at 12 month lows.

• In other news, the “mothballed” Ensus plant is reported to have been sold to German based CropEnergies for a sum reputed to be under 5% off the £250 million construction cost, and paid in shares – not cash. That must have hurt! Assuming the new owner will want to see the plant actually run, we can expect anything up to 8% of the UK wheat crop, which is expected to be around 12 million mt, to go into Teeside. Add to this the capacity for the Vivergo plant and we can see another tight UK S&D situation becoming tighter. Reliance upon imports will be a feature once again, the key question will be what premium over EU mainland prices will be required to ensure adequate supplies in the UK. One further question remains, and that is, will either plant use corn in place of wheat, we know the Ensus plant trialled the use of corn prior to the last shutdown – time will tell.

• Finally we would like to offer our congratulations to the Duke and Duchess of Cambridge upon the safe arrival of their son.

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

Weekly Update 19 7 2013

• Today saw the return of Egypt’s GASC (General Authority for Supply Commodities) to the tender market, the first since President Mohamed Mursi was ousted earlier this month. They purchased a total of 300,000 mt for late August shipment, 120,000 each from Romania and Russia and 60,000 from Ukraine. Prices appear to have been aggressive, but that is what we tend to see, certainly from Russia and Ukraine in early season sales.

• Today, Stratégie Grains increased its forecast for 2013/14 EU wheat output based upon improved weather conditions across much of the region. The crop, which is the world’s largest, was increased to 133.4 million mt from 131.5 million mt a month ago, and this compares with 125.5 million mt last season. This figure, if achieved, will be the third highest and a five year high. However, exports were also forecast higher, by 4.6 million mt to 22.3 million mt (from a month ago), which is 2.8 million mt higher than last year. The net effect is to see end stocks virtually unchanged year on year at 11.4 million mt, but lower than the 14.2 million mt predicted a month ago.

• EU barley production was also forecast higher at 57.3 million mt (compared with 56.1 million mt a month ago), which is 2.6 million mt higher than last year’s output of 54.7 million mt. Despite a marginal increase in forecast exports from the EU, end stock is forecast to grow by 1.4 million mt compared with last year.

• The EU corn S&D is somewhat less changed (month on month) with an increased carry in figure and production reduced by 100,000 mt, which is exactly offset by a similar increase in imports. The net effect is that forecast end stocks are to increase by 700,000 mt year on year.

• In the weather dominated US markets prices closed lower but above the lows of the day. Wheat was the laggard, awaiting the outcome of the Egyptian tender as well as news of US export data. Corn and soybean oil exports were reported above expectation, whilst wheat, soybeans and soybean meal were all within trade estimates.

• Forecasts for the US crop producing area weather are all (currently) generally favourable with nothing in the way of excessive heat and some precipitation extending into the middle of next week. This is resulting in a degree of weather premium being removed from prices, which as we have reported, are declining albeit slowly. The long term outlook into August prepared by NOAA (National Oceanic and Atmospheric Administration), details average temperatures and rainfall across much of the US.

• Brussels granted wheat export licences totalling 327,872 mt this week, which brings the three week old season total to 642,831 mt. This is over 250,000 mt higher than the three week total of last season (67.2%), albeit it is still extremely early in the marketing year.

• Finally, recent rains in Canada look to have improved the canola crop, potentially to record levels according to their farm ministry. Production estimates rose by half a million mt to 14.6 million mt. This level of output is merely 8,000 mt lower than the record output of two years ago. Also assisted by improved weather is the level of wheat output according to Lanworth who increased, by 1.9 million mt, their forecast to 29.8 million mt. They said that temperature, precipitation and soil moisture levels had ranged from average to moderately cool and wet in June and July across the key wheat growing areas of Alberta, Manitoba and Saskatchewan, and described them as favourable.

• In summary, today’s news all appears to lean towards our favoured view, which is cautiously bearish at this time.