• In a change from yesterday it seems the US weather is looking somewhat less threatening, in fact almost favourable, so the CBOT markets close in the red. Fund selling in corn and buying in wheat and soybeans was reported in an unspectacular day of trading. As we stated yesterday, the weather looks to be “normal” or average over the next couple of weeks and threats to crops would seem a distant prospect at the moment.

• One on-going issue continues to hover over the market, and that is Chinese wheat supplies, with Chinese importers currently trying to secure at least 500,000 mt of Australian wheat for January-March shipment. Their requirements and an unknown factor, but their activity in recent weeks suggests that they have a problem and are in the market to resolve it. The impact upon global wheat S&D will doubtless be interesting. On the one hand additional demand, potentially a bullish factor, and on the other hand the prospect of bountiful corn supplies which will weigh heavy on wheat prices.

• It appears that July trading will focus on weather issues and little else.

• We will start tonight’s update with a “bold statement”, and that is that global weather conditions are pretty good, if not absolutely ideal, for crop development. It would not take much to make these conditions even better, and timely rains in some areas could be all it needs. That said, we believe today’s price hikes on the back of weather concerns are somewhat misplaced and we favour selling such rallies.

• Harvest progress has been reported in many areas, Spain’s barley crop is well under way, complete in the south, and commencing in the north with good yields so far and quality believed to be better than in recent years. Soft wheat progress is good in central regions and yet to start further north, the yield so far is reported to be excellent. Stratégie Grains forecast soft wheat output at 6.8 million mt to be the highest in 13 years and barley at 9.1 million mt well above last year’s 6 million mt.

• The French harvest is now under way, at about 10 days later than usual due to the weather, and whilst it is still early, yield is reported to be lower than last year. The likelihood of this trend following the harvest north would seem to be high. Quality has yet to be determined although initial indications show a high degree of variability.

• US winter wheat is 67% complete, with the crop fully harvested as far north as Kansas. If the weather plays its part the corn harvest will get under way in a couple;e of weeks in the south, soybean harvesting is likely to start towards the second half of August. Russia’s AgMin report the harvest to be complete in Krasnodar with output at 7.1 million mt, which is more than double last year’s 3.4 million mt. Krasnodar, and the south, are key in determining both the pace of exports as well as price. Ukraine’s harvest is reported to be nearly 70% complete with yield almost a third higher than last year.

• The US crop condition report showed the proportion of corn rated good/excellent at 66%, a drop from last week’s 68%, and soybeans were rated 65% good/excellent, a decline from 67% a week ago. The condition downgrades have no doubt contributed to today’s price direction as volume in Chicago has been brisk with fund short covering in evidence.

• Stratégie Grains today updated their outlook for UK grain production, and the improved weather in recent weeks has clearly factored into their projections. They acknowledge the seasonal delay caused by poor weather early in the season, and report wheat crops to be around ten days behind normal. Early wet conditions have left root systems less than optimal, and (in a bizarre turn of fate) given current hot and dry weather there is now a suggestion that stress could well become an issue. That said, crop condition is much improved and yield has been estimated slightly higher. Wheat output is now forecast at 12.056 million mt, and total barley at 6.815 million mt.

• Combines are reported to be cutting winter barley in eastern counties of the UK, although we have no reports, as yet, on yield or quality.

• Reuters today reported that discussions with the IMF were no longer necessary following the support received from neighbouring Arab nations. The level of financial assistance received was stated to be sufficient to allow a financially secure period of transition according to their new planning minister.

• CBOT markets in corn and wheat closed lower amid a stronger US$ and talk of improved weather conditions, by which we mean a retreat from the projections for extreme heat, particularly across the US corn belt. In the face of potential record corn and soybean crops it would appear few have the appetite for sizeable long positions and are positioning themselves accordingly. Corn pollination risks from extreme head would seem to be evaporating at a brisk pace.

• WEEKLY OVERVIEW
• We return from holiday to what feels like a different country, warm (or more accurately, hot) weather, and sunshine rather than the dreary, cold and wet conditions that were prevailing some weeks ago. Consequently there is somewhat more optimism over crop development albeit the damage done in the early season cannot be undone, and harvest will doubtless be later than average.
• From a more global perspective, Egypt’s President Mohammed Morsi was ousted by the military leaving concern over the future leadership and direction of the country. In recent days neighbouring Arab nations have granted aid and loans amounting to $12 billion, which should prove sufficient to permit an on-going wheat import programme. Somewhat cynically we might suggest that the “Arab Spring” which arose as a result of high bread prices in Egypt, and spread across much of the region may well be in the back of the philanthropist’s mind, and that a repetition is the last thing they want. Maybe, on the other hand, that is just plain uncharitable!
• Overall market direction across the last week or so has appeared somewhat bullish, triggered by suggestions of hot and dry conditions across key US cropping regions coupled with the continued tightness in old crop soybean and corn where cash bids (over futures) persist at high and even record levels. Added to this it would seem that funds were simply “too short”, and needed to address their positions. Our understanding is that soil and sub-soil moisture levels are far from critical and that temperatures are not threatening, which leaves crops to develop in pretty much favourable conditions. As one commentator said earlier this week, “The bulls need a weather problem. It’s just about that simple.”
• We believe yesterday’s WASDE report to be slightly bearish as far as raw data for soybeans and corn are concerned, principally due to the increase in new crop year-end stocks. Wheat data was less so, with probably more questions than answers emanating from the report. The good news of an increase of 2 million mt in world 2013/14 production (US, EU and Australia) was tempered by China’s jump in feed consumption of 5 million mt in both 2012/13 and 2013/14, and largely accounts for the reduction month on month, of global end stocks by 9 million mt. The questions in the wheat numbers lie in the output levels in India, Pakistan and Russia, which many believe to be overstated by the USDA, no doubt time will eventually tell who is correct.
• To summarise the report, global wheat has moved away from the previously predicted stock build into a stock reduction position, which (if output in India, Pakistan and Russia fails to meet USDA forecasts) could accelerate. That said, the soybean and corn S&Ds look bearish, with 2013/14 global corn output over 100 million mt greater than the previous year and 2013/14 year end stocks over 27 million mt above 2012/13, there is scope for prices to decline significantly. If this materialises the likelihood is that there will be a knock on effect on wheat prices despite the differing S&D fundamentals.
• In conclusion, we continue to favour a cautiously bearish position and believe there will be better opportunities for consumers to take cover on new crop requirements.

• The headline data released today showed that global wheat supply and demand has moved, in a very short period of time, from stock building to stock reducing. Sharply reduced US stocks and a 10 million mt jump in Chinese feeding shows that, like most of us, the USDA has little, if any, idea of the reality of Chinese supply and demand data. Data for India, Pakistan and FSU all looks a touch high as well.

• Overall the report should be seen as slightly bearish based upon large new crop end stock estimates and an unchanged forecast for US corn and soybean yield. Bullishness has emanated from estimates of 2013/14 Chinese wheat import estimates, which have jumped from 5 million mt to 8.5 million mt. This, coupled with reduced carry in, left world end stocks some 9 million mt lower.

• In the shadows of the report the 2013/14 world wheat crop was reported at 697.8 million mt, which is an increase of 2 million mt and the second largest crop on record! Improved US and EU harvests were the principle drivers of the increase, with the EU up 1.2 million mt.

• US corn yield was left unchanged at 156.5 bu/acre with acreage increased to 97.4 million acres. This leaves the 2013 crop estimated at a record large 13.95 billion bu. Any increase in yield, which is possible given current weather, soil moisture and growing conditions, could see output in excess of 14.25 billion bu. Yes, it will be necessary for the weather to cooperate, but we are not looking at last years dire dry conditions thank goodness! There is full potential for corn carryout to exceed 2 billion bu, which argues a lower price than we are seeing today, which will in turn place its own pressures on wheat prices.

• Overall we do not see the report as introducing long term bullishness to the market.

To download PDF summaries of today’s report please click on the links below:

USDA Soybeans July 13

USDA Corn July 13

USDA Wheat July 13

• Tomorrow’s USDA report has overshadowed trade today. The rally of the last couple of days feels “tired” and lacking momentum, based upon US old crop tightness and suggested weather threats. Given the relatively abundant soil moisture levels (compared with last season) it will take a seriously prolonged dry period to materially damage output. Despite this, short covering has been the order of the day once again following significantly low fund positions reported at the weekend.

• The outlook for US weather is relatively benign after about a week with predictions of a return to average or normal conditions, neither too hot or too dry. The effect will be to permit winter wheat harvest to progress and allow sowing of double crop soybeans, which will potentially further boost overall output.

• The Russian weather outlook shows normal to better than normal rainfall in the coming week to ten days which will benefit spring wheat crops across the Central, Volga and Siberian regions.

• Following yesterday’s news of financial support from neighbours of Egypt, we heat today of further assistance this time in the form of $4 billion in aid from Kuwait. Clearly there is a willingness from neighbouring Arab nations to assist the troubled Egyptian economy.

• In summary we view the current rally as being largely old crop based, aided by weather news which (at present) is not fully warranted, as as such presents a selling opportunity rather than a trigger for consumers to take cover.

• CBOT corn, soybeans and soybean meal markets have shown a strong rally, albeit closing off the day’s highs, on forecasts  of developing hot and dry weather in the US Midwest. Additionally tightness in old crop supplies have helped the July contracts (which expire on Friday) remain at strong premiums to the new crop. Short covering assisted the market’s rise in early trade. Wheat has also risen, presumably in sympathy with corn. The rally saw producer selling in new crop positions which saw prices ease from the day’s highs.

• The weather development in the US will be key, but markets will lose the old crop stimulus after the close on Friday, and it is possible that this will be sufficient to see new crop fundamentals to overtake the old crop supply worries and prices ease as a consequence.

• Brazil’s Conab raised the already record 2012/13 soybean and corn crop output figures at 81.5 million mt and 79.1 million mt respectively. In the same report the 2013/14 wheat crop was put at 5.61 million mt, a slight increase from last month’s figure. Soybean and corn forecasts for the 2013/14 crop year will not be published until October, after planting,

• Various news agencies have reported financial arrangements being negotiated with Egypt, including a $3 billion loan from United Arab Emirates, and a $5 billion aid package from Saudi Arabia. It will be interesting to see whether they return to the tender table when these deals are concluded.

• OilWorld have today raised their forecast for EU rapeseed output at 20.4 million mt, an increase from 19.72 month on month, which is almost exactly 1 million mt higher than last year’s output. They cited improved growing conditions across much of the EU, which have more than made up for the poor anticipated UK and northern French crop. They also forecast an improved Ukraine crop, over 2 million mt, significantly above last year’s 1.3 million mt.

• It appears that the markets are appraising fresh global demand in wheat, particularly from China. CBOT markets closed a touch higher and some short covering was noted as export demand was confirmed and US weather outlook was construed as “uncertain”.

• European weather conditions appear to be beneficial for development of the late crop, whilst private Russian crop estimates are reduced slightly and have the feel for further reduction if dry conditions persist.

• Harvest is building in southern Europe and last year’s biggest buyers from the Black Sea, Egypt and Turkey, are not there as buyers right now. This adds to “harvest pressure” and the situation in Egypt may well make Syria look like the warm-up act.