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Weekly Update 30 August 13

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• Markets closed last night in Chicago looking somewhat easier with EU grains also lower.

• Brussels granted another big week of wheat export licences with 730,177 mt bringing the season total to 4.127 million mt million mt. This is 2.08 million mt ahead of last years volume, more than double!

• Stratégie Grains reported on the ongoing UK harvest with winter barley all but complete and spring barley 30% done. Wheat was reported to be 40% harvested. Probably of more significance was their more upbeat estimate of overall output with wheat forecast at 12.25 million mt (194,000 mt up on 15 Jul estimate), barley at 6.875 million mt (60,000 mt up on 15 Jul estimate).

• German crops are also just about fully harvested with quality reported to be good, however it appears growers are electing to store rather than sell at present. The discount for feed grains compared with milling is reported to be narrowing.

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

Wheat; 551,400 mt which is within estimates of 350,000-575,000 mt.
Corn; 658,700 mt which is within estimates of 300,000-700,000 mt.
Soybeans; 865,500 mt which is within estimates of 500,000-1,050,000 mt.
Soybean Meal; 210,000 mt which is within estimates of 110,000-275,000 mt.
Soybean Oil; 24,600 mt which is above estimates of zero to 20,000 mt.

• We thought it would be nice to start with some fresh news tonight rather than a rehash of everything that has  been before!

• Egypt returned the the market for wheat, this time for October shipment, and purchased a total of 295,000 mt. Ukraine topped the sellers with 175,000 mt with Russia and Romania being awarded 60,000 mt each. It appears the only other offer was from France, and about $20 too expensive (or is it that Black Sea offers are too cheap?).

• We are approaching a long weekend in the US (Labour Day) and with forecasts containing hints of rainfall and cooler temperatures it is entirely possible that we may see something of a retracement in coming days.

• Newswires are full of “cooler weather” reports, Reuters being a good example; their contribution suggesting lower temperatures into the weekend and remaining cooler next week. The possibility of much needed rainfall over the weekend has also been widely reported.

• Regardless of speculative weather news, it would seem obvious that the soybean crop in the US is in need of moisture and will also benefit from a reduction in temperature if yield is to be optimised.

• The Reuters forecasting arm, Lanworth, added their latest forecast today with a corn yield of 152.4 bu/acre resulting in a crop of 13,406 billion bu. Their estimated soybean yield of 40.8 bu/acre results in an output of 3.14 billion bu (2% decline month on month).

• As suggested yesterday we have seen London wheat play “catch-up” and prices, with gains as much as £6.00/mt recorded in the front month Nov ’13 contract although closing levels were (only) £4.45 higher. Nearby Paris contracts finished either side of unchanged; both markets experienced volume significantly above normal as traders came to terms with yesterday’s moves in Chicago.

• As we approach the close in CBOT markets the soybean complex, which has been trading in positive territory for much of the day, has turned around and is trading lower, presumably on profit taking after its recent positive run. Corn has been trading lower (as much as 2% in nearby contracts) and wheat is following although to a lesser degree.

• Initial CBOT trade showed further fund demand in soybeans and the September highs $14.09¾ managed to prove a tough enough resistance point which (today) held firm and the market retreated lower. Funds were cautious sellers in both corn and wheat according to reports.

• Weather reports suggest we may well be hitting the peak of temperatures and that the central US is forecast to receive cooler and wetter conditions later in the week and into the weekend. However, the market is unlikely to react strongly until such time as actual rain falls and temperatures reduce.

• The latest US crop condition report showed corn to be 59% good/excellent, a decline from last week’s 61%, which was within expectations. Soybeans declined 4% to 58% good/excellent, again as expected. Spring wheat condition improved by 1% to 67% good/excellent.

• Early harvest reports show corn to be progressing quickly in southern US states with Texas and Louisiana having cut over 50% with reported yields to be at record levels. Soybean harvest has similarly commenced in southern states with little data available in terms of output at present.

• In a day of little else in the way of news revelations we continue to view the last few days rally as just that, a rally which we believe will be looked back upon as a selling opportunity before we give way to lower levels. The likely triggers for lower levels will be a crop benefitting weather event (in the US), rain and colder weather, or the ramp up in US harvest. Either way we would be reluctant to buy into the current price level right now.

• Despite the Bank Holiday in the UK today markets in Europe and the US have continued without us! Fear of further hot weather and associated dry conditions has pushed the soybean complex and grains substantially higher as funds rushed to cover their short positions or add to their longs. As funds bought it was apparent that commercial sellers were there to take advantage of higher levels, which may well have limited gains. Brazil has seen aggressive selling on the rally, which when coupled with their revalued currency leaves growers with prices at, or very close to, record highs. Argentine sellers, who have been absent in recent weeks, were also notable in today’s trade.

• Weather, which is the driver, is forecast with high temperatures and only a few showers, adding to crop stress although forecasters are predicting a return to more normal conditions after this week. Rains are forecast, although not heavy they will likely cap this rally and we may well see the highs in place, potentially a “top” to sell into.

• We look for tomorrows London wheat market to open substantially (£5.00/mt) higher to reflect CBOT and Paris levels.

• Oil World have revised upwards, by 1.7 million mt, their estimate of total global output of the seven major oilseeds from a month ago, and the new total of 478.4 million mt is an increase of 22 million mt from a year ago. If these numbers prove to be correct, and Oil World are pretty credible in this respect, this will help to rebuild global stocks from last year’s drought depleted stock levels. The key upgrades were in sunflower seed (1.5 million mt), rapeseed and canola (1.3 million mt) to all time highs of 40.2 (suns) and 64.8 (rape & canola) million mt respectively.

• Less spectacular though was their 1.7 million mt downgrade in their estimate for soybean production to 282.5 million mt. The US accounted for a downward revision of some 2.5 million mt, Canada a reduction of 0.35 million mt whilst India was forecast higher by 1 million mt.

• 2013/14 opening oilseed stocks are expected 6.35 million mt higher at 73.4 million mt, and with overall output increased by 28 million mt from a year ago to 552 million mt it is expected that end stocks will rise to 85.8 million mt, of which 72.6 million mt are soybeans. This gives a projected stocks/use ratio of 18.4%, the best in four seasons, helping to bring to an end the tightness which has been experienced recently.

• Looking forward, Brazil’s Mato Grosso region (their major soybean producer) has been unusually dry, and is forecast to remain so at least until mid-September. If dryness extends beyond then, plantings may well be delayed. Southern Brazil on the other hand has more favourable soil moisture conditions.

• The current high price of soybean meal appears to be largely driven by tight global supplies, and is likely to remain so through the remainder of August and September, despite the promise of a recovery in production, exports and usage in the second half of this season.

• After initial price declines we have seen prices strengthen again on potential US soybean production fears. However, current (high) price levels reflect both the low level of crush in S America, despite their good crop, as well as the tightness of soybean supplies in the US. We believe downward price pressure will be seen once new crop US supplies begin to filter through. It must be borne in mind that there will be strong competition from US domestic demand which could well impact export availability at the beginning of the season.

• That said, if the US crop is a large one and the weather plays ball, and S American new crop production is large (as currently anticipated) we could well see significant price pressure on soybean meal in the Oct 2013 to Sep 2014 season.

• In light of late news coming in overnight we have added the following to our usual weekly summary (below).

• Clearly price action in CBOT markets has centred upon weather concerns, and it seems that the latest forecasts are in pretty good agreement that higher temperatures are scheduled into the end of the month, possibly the highest of the season to date. Whilst these temperatures will no doubt stress growing crops in the Midwest, which missed out on this week’s rain, many other areas (Plains, Delta and much of IN, OH and KY) have sufficient soil moisture to endure the heat. The key Midwest region where under 50% of average rain has fallen since late July is the area causing concern.

• We are advised that late summer heat events, such as are forecast, rarely last long and more normal temperatures and rainfall should follow on into early September.

• The Pro Farmer Crop Tour results were published late Friday, and the key points include their estimate of soybean yield at 41.8 bu/acre. History shows us that their estimates correlate closely with the USDA’s NASS September number but less closely with final yield. To that end we have to ask how much value the figures hold. Markets closed with strong gains on the news and the weather premium now built into prices is considerably higher than in previous weeks.

• The Tour estimated corn yield at 154.1 bu/acre, almost exactly in line with the latest USDA number; however they estimated acreage 1.8 million acres below the USDA and consequently overall yield at 13.46 billion bu, which is 303 million bu under the latest USDA number. Corn prices rose but to a lesser degree than in the soybean complex, and we believe the uplift was more in sympathy with soy than on corn fundamentals.

• Wheat prices rose slightly in line with gains in corn and fund activity was believed to be adding marginally to long positions. US soft red wheat is priced well above both French and Black Sea, and with the prospect of the bumper Canadian crop we find it difficult to see much more in the way of upside in US levels.

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Weekly Update 23 August 2013

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Fund positions

• In the continuing roller coaster, which is the current CBOT market, we saw lower levels today with the soybean complex, corn and wheat all closing in the red.

• The ongoing Pro Framer Crop Tour has reported positively regarding Illinois corn yield with 170.5 bu/acre, well above last year’s figure and above the five year average of 148 bu/acre. We have been reminded that the three year average does, of course, include last year’s drought result and is therefore perhaps lower than would be considered “normal” but we maintain that it is statistically correct and therefore valid for comparative purposes.

• The State averaged a soybean pod count of 1,156, which is marginally below the three year average of 1,149 pods 3 foot by 3 foot test plot. One material point has emerged from the latest comments, and that is variability in crops is high. Seemingly there are adjacent plots with a high variance, one good and the other bad, which leaves some of the sampling data open to question and therefore the accuracy of the survey needs to be confirmed by actual harvest data.

• There has been some needed rainfall across some of the dry Midwest and this triggered long liquidation in a market which has displayed nervousness related to weather in recent trading sessions. A lasting pattern of rainfall is needed before we can consider the nervousness to be misplaced, and it appears we need to wait until September before this is likely.

• Brussels granted wheat export licences totalling 585,818 mt bringing the season total to 3.397 mt, which is more than double last season’s comparative figure of 1.653 million mt.

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

Wheat; 494,000 mt which is within estimates of 450,000-550,000 mt.
Corn; 492,600 mt which is below estimates of 725,000-975,000 mt.
Soybeans; 946,900 mt which is below estimates of 1,300,000-1,800,000 mt.
Soybean Meal; 176,700 mt which is within estimates of 150,000-300,000 mt.
Soybean Oil; 9,700 mt which is below estimates of 10,000 to 20,000 mt.

• We continue to keep our neck on the block and look for lower levels!

• StatsCan figures, released today, confirmed expectations of a bumper all wheat crop, set to be the best in 22 years as well as a record canola crop. Unfortunately the latter, whilst still a record, is well below market expectation and left prices in both Canada and the corresponding Paris rapeseed market trading higher. Wheat was forecast at 30.56 million mt, which is close to 13% ahead of last year’s crop and also ahead of trade expectation of 30.4 million mt and the ministry figure of 29.2 million mt. Gains in both acreage and yield were reported to have contributed to the harvest number.

• The canola forecast at 14.74 million mt, was reported to be above ministry expectations and ahead of the previous record of 14.61 million mt set a couple of years ago. Whilst harvested acres are set to reduce, it is the jump in yield of some 22% which is responsible for the gains. Despite the forecast, trade expectation was for a higher figure of 15.5 million mt and the latest USDA forecast of 15.3 million mt, hence the uplift in prices following release of the figures.

• The ongoing Pro Farmer crop tour has reported from Nebraska, the US’s third largest corn producer, with estimated yields of 154.9 bu/acre. Whilst this is an increase over last year’s drought hit crop, it is only slightly above the three-year average of 147.9 bu/acre. The crop is understandably delayed in its development as a result of planting delays, but forthcoming warmer conditions will help the crop to advance.

• The tour reported soybean pod counts below the three-year average once again on account of delays in planting and cooler conditions. Their figure of 1,139 pods (in a 3 foot by 3 foot plot) fell marginally short of the 1,162 pod count average. The tour is scheduled to release its overall conclusions on Friday.

• SovEcon today reported potentially reduced grain exports from Russia in September following a busy July and August. High prices and questions over volume stocks of quality wheat are reported to be responsible for lower demand from key buyers. More attractive supplies and prices from the likes of Australia, Canada and the US as well as offers of lower grade material from Ukraine all contribute to the pressures on Russian supplies.

• Prices in Chicago have once again risen as concerns continue to exist over warm and dry weather conditions in the Central US. Harvest is some six weeks from commencement and with it will come harvest pressure, potentially relieving the high old crop cash premiums which have featured in recent months. One further factor will be the need for US prices to compete with (currently) better priced supplies from S America and Ukraine. (Ukraine corn remains $10-15 below Brazil, and $20-25 under US). Failure to compete will likely result in lower export volumes and consequent higher end stocks. Clearly the road for higher US prices appears to be fraught with issues which will materialise from outside the US.

• Last night Reuters reported on the potentially bumper Canadian wheat and canola (rapeseed) harvests just around the corner according to their poll of analysts. A record canola crop and the largest wheat crop in some 22 years was their conclusion ahead of the StatsCan forecast due Tuesday. Weather conditions have allowed crops to develop in good conditions improving the outlook for the forthcoming harvest. Average trade estimates for wheat output are at 30.4 million mt and canola at 15.5 million mt. Abundant precipitation following a crop delaying cool spell has left crops to develop outside the hottest period, leaving the potentially large harvest. The now common caveat of an early, and potentially damaging, frost has to be borne in mind until such time as the crops are fully gathered in.

• Tuesday in Chicago, in good old folk lore tradition, has displayed “turnaround Tuesday” characteristics which have bucked Monday’s price gains although only marginally. The Pro Farmer tour continues to leak positive data with positive soybean pod counts and potential corn yields. Again, as with Canada, the frost fear story remains as a “Sword of Damocles” hanging over the fast approaching harvest period.

• International soybean trade (unsurprisingly given the tight supply position) has shown a marked switch away from the US to Brazilian soybeans where it is reported that over 1 million mt has been traded in the past week to China. It is anticipated that Brazil will account for a larger tonnage than in previous years given their latest crop and competitive pricing.

• Additional information is thin on the ground, EU wheat values have not matched the jump in US prices presumably being capped by Black Sea sellers and harvest completion in France although rains have delayed work in German and central regions. On a positive note, quality concerns appear to have moved to there sidelines for now although premiums for quality samples appear to remain towards the higher end of the spectrum for the time being.