• The week has started in positive mode, from a pricing perspective, with pricing boards displaying green as weather prospects contemplated warmer and dryer conditions in the near term forecasts. The forecasts were enough to trigger some fund short covering which has raised awareness of size of their short (or small long) positions and all which can go with them. To counter this, the Pro Farmer crop tour, which is currently under way, has suggested central Ohio is moving towards corn yield and soybean pod counts ahead of their three year averages and weather conditions assisting with crop potential (according to Reuters reports today).

• Higher prices have encouraged farmer selling, particularly in Brazil where it is estimated that last week alone in excess of 2.5 million mt of soybeans were sold by growers. We have reported in recent weeks of the likelihood of S American plantings favouring soybeans from a purely economic standpoint with gross margins on the oilseed crop significantly ahead of those from corn.

• Price action over the rest of the week will be interesting, will the bulls be able to grasp the new weather data and turn it to their advantage, and higher levels, or will the bears regain dominance with strong global fundamentals and resume the grind lower. We will watch with interest.

• Our currently preferred view is that we are seeing a “bounce” (dead cat springs to mind) in prices which have declined significantly and global supplies appear to be sufficient to put a cap on the extent of the price rally in place right now. No doubt we discover in the fullness of time whether or not we are correct.

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

Weekly Update 16 August 13

• CBOT markets have reacted to the upside today on continued short covering and as news from US farm officials warned that soybean yields in Iowa, the US’s top producing state, could see only a small improvement over last season’s drought reduced yields. The caution referred to lower than average rainfall in July which may reduce yield. Consequently rainfall across the state in August will be watched closely and be viewed as critical to the crop which was described as “stressed” but helped by lower than average temperatures. The weather outlook for the next week to ten days is for dry and warmer conditions, which has raised concerns.

• Additional price pressures have arisen from the confusion created by the FSA, a branch of the USDA, who published their initial prevented planting and planted acreage figures. Uncertainty has now arisen from the 2013 US corn and soybean planted acreages within days of the latest USDA report released on Monday. This uncertainty has resulted in short covering in volume and an uplift in prices across the soybean complex, corn and wheat markets. Added to this we saw larger than expected weekly export sales (see below) and the bulls took heart as pricing boards displayed acres of green.

• One thing is for sure, and that is farmer reporting is not fully complete. Whilst this will no doubt sort itself out in the fullness of time, the market does not gain anything from such confusion and uncertainty.

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

Wheat; 495,600 mt which is below estimates of 550,000-750,000 mt.
Corn; 777,000 mt which is above estimates of 250,000-650,000 mt.
Soybeans; 1,882,900 mt which is above estimates of 900,000-1,200,000 mt.
Soybean Meal; 243,400 mt which is above estimates of 100,000-200,000 mt.
Soybean Oil; 7,800 mt which is within estimates of zero to 25,000 mt.

• London wheat resumed its more usual price discount to Paris basis closing levels and exchange rates at 6pm UK time today. London’s first three contract months saw losses whereas Paris made gains across the board. Gains in Paris come as little surprise given that French wheat (as well as Ukraine) continues to look the world’s cheapest right now.

• Interestingly we have today seen Paris milling wheat futures values regain the upper hand with all positions (excepting May ’14 by £0.07) displaying a premium to their London feed wheat counterpart (basis exchange rates at 18:00 UK time) for the first time in many months. Whether this will be a lasting situation remains to be seen!

• Brussels granted wheat export licences totalling 706,609mt this week, which brings the season total to 2.811 million mt, 1.3 million mt ahead of last season (87.2%).

• In Russia their AgMin has downgraded the 2013 grain harvest to 90 million mt from 90 to 94 million mt last as a consequence of unfavourable weather conditions. Ukraine’s AgMin has estimated August grain exports at 2 million mt, an increase from their last 1.5 to 1.7 million mt. Germany’s association of farming cooperatives, DRV (Deutscher Raiffeisenverband eV) increased its overall estimated grain harvest to 47 million mt,  winter wheat making up 24 million mt, winter barley 8.3 million mt, corn 4.5 million mt and rapeseed 5.9 million mt.

• Today has restored a degree of faith in what we believed to be market fundamentals in true “turnaround Tuesday” style, particularly as far as corn and wheat are concerned. Dec ’13 corn broke below the lows of yesterday before the USDA report sent prices upwards as did Dec ’13 wheat. The soy complex was somewhat more reserved trading in a more conservative manner with soybeans closing either side of unchanged but certainly not following yesterday’s upside momentum. The big question will be, “have we seen the end of a short lived price rally?” It is clearly far too soon to answer this, but today has shown that there are those who appear to disagree with the USDA report, and in some style!

• Those who believe we will (very soon) be seeing a large US corn crop, in addition to large Brazilian and Ukraine crops, and the need for the US to become competitive in an already competitive market have had their way today, and would appear to have dragged wheat along for the ride. Reports have indicated that funds were buyers in the soy complex and have sold corn and wheat today.

• If we look at historic price relationships (which we know is no guarantee of future direction) the relative price of soybeans to grains is high, and in the course of normal events is likely to correct to more “normal” levels I.e. lower.

• US crop condition as reported yesterday shows corn crops 64% good/excellent, which is unchanged from last week, as is the soybean crop at 64%. Spring wheat good/excellent rating is down 2% from last week at 66%, and the winter wheat crop is reported to be 92% harvested, 1% better than the five year average.

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

Weekly Update 9 August 2013

• Today’s CBOT market has displayed evidence of pre USDA report jitters with short covering very much in evidence and prices responded accordingly – soybean complex and corn higher whilst wheat levels eased slightly. Notably, end user buyers were in evidence particularly on nearby positions – presumably “just in case” the USDA springs a surprise!

• London and Paris wheat markets showed lower closes once again, despite a rain stalled harvest in France, and their yield and quality reports continue to improve. Similar reports of improved quality are coming from southern Germany and Baltic states which should encourage, however Black Sea quality reports are less encouraging as specific weight numbers appear to be lower than usual.

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

Wheat; 726,200 mt which is above estimates of 500,000-700,000 mt.
Corn; 511,000 mt which is within estimates of 450,000-900,000 mt.
Soybeans; 1,097,000 mt which is within estimates of 700,000-1,100,000 mt.
Soybean Meal; 135,600 mt which is below estimates of 160,000-290,000 mt.
Soybean Oil; 2,500 mt which is within estimates of zero to 15,000 mt.

• Brussels has this week granted export licences totalling 396,161 mt, which brings the season total to 2.104 million mt. This is 912 kmt ahead of last season (76%).

• The current US weather outlook continues to favour crop development and we see little in the immediate future to change this viewpoint. In addition Brazil’s CONAB has added 1.2 million mt to its latest 2012/13 corn crop, now put at 80.3 million mt. This is some 3.3 million mt higher than the USDA’s latest estimate, and coupled with a forecast of increased soybean acres this autumn can only add to non-bullish sentiment.

• Today, Bank of England governor, Canadian born Mark Carney, announced the continuation of low interest rates until unemployment falls below 7%. The level currently stands at 7.8%. He additionally stated that until that threshold was reached the Bank would not cut back on its £375 billion asset purchase purchase programme. Sterling gained over $0.03 vs. the US$ and €0.02 vs. the Euro on the news which was deemed “good news” for business.

• Wheat prices in Chicago have come under pressure today rather than corn or the soybean complex as has been the case in recent weeks. Today’s price moves have seen the spread between Dec ’13 corn and wheat drop below $2.00/bu (at the time of writing) in a move seen as correcting towards a more “normal” level although some further additional correction has to be made before normality can be considered to be in place. The lack of additional fund selling, particularly in soybeans and wheat, probably attributable to the approaching WASDE report on Monday next week, could well be responsible for what seems to be lack of direction today.

• Monday’s report will provide interest, not least from whether the soybean acreage as well as average yield will be revised/adjusted, and is scheduled to be released at 5pm (UK time). Trade estimates for corn yield average under 158 bu/acre, many are talking 160 bu/acre, and with agreement already in place on plant populations being high, we could well be in for some surprises.

• In corn, China has reportedly purchased from Ukraine and additionally approved GM varieties for importation from Argentina. The change in sourcing policy fundamentally presents an interesting dynamic in the global trade for corn going forward.

• In the absence of fresh news to fire up the bulls or bears we look set for uninspiring and directionless markets which have only the continued favourable growing conditions which prevail across key global regions right now to provide guidance. In this light any rallies will be swiftly capped, and we continue to favour lower prices until such time as fresh news hits the headlines.

• The wheat market found a touch of support from Egypt’s further foray into the wheat tender market, which resulted in yet another deal for Ukraine and Romanian suppliers, each awarded 60,00 mt. Russian offers came close, but not quite close enough and French offers on an FOB basis looked competitive, but missed out on higher freight costs making the final C&F offer too high.

• In Paris, wheat prices fell to new contract lows, once again, not helped by a stronger Euro, and news of improved yield and quality in the northward moving harvest added to the lack of price support. Indeed, protein levels are reported to be improving as the harvest progresses and fears of a dearth of quality wheat is beginning to recede.

• In the US little in the way of fresh weather news has left markets without directional impetus and consequently the decline has continued without much conviction.

• Markets started the week lower both sides of the pond with Paris wheat hitting contract lows and London finding its lowest level in 12 months. The advancing harvests inn Europe, with France estimated to be 30% done, have allowed cash premiums to decline as harvest selling pressure becomes more evident than has been the case in nearly two years. Black Sea regions were not as positive, the harvest in Russia is reported to be 40% complete and heavy rains have hampered progress in central western regions. Interestingly, strong domestic demand is supporting prices, which have remained broadly unchanged (basis FOB levels) despite sharp declines in US and European prices.

• Informa Economics released their latest estimated figures which showed some declines from numbers a month ago. Corn yield was estimated at 158.6 bu/acre vs. 160.0 bu/acre last month and is still above the USDA’s 156.5. Output at 14.14 billion bu is down from 14.259 billion bu a month ago, but still 190 million bu higher than the USDA”s latest estimate. Soybean yield was also reduced month on month, to 42.7 bu/acre from 43.9, and compares with the USDA forecast of 44.5 bu/acre. Overall output at 3.266 billion bu is down 110 million from the 3.376 billion bu last estimated a month ago. Total wheat output was estimated at 2.125 billion bu, slightly ahead of the last USDA figures as prospects for spring crops continue to look favourable.

• In the UK, according to the HGCA (Home Grown Cereals Authority), the two week late harvest in under way with some 10% of the winter barley and 5% winter rapeseed crops gathered in. Warmer and dryer conditions in late July have been beneficial for crop development, late grain filling being aided most. Crop stress from dry and hot conditions has been limited to crops on lighter land. Whilst the bulk of the crops are still a couple of weeks away from harvest, it appears that there are a few issues with some fields displaying poor weed control as a consequence of the wet autumn. Also in winter barley, secondary tillering in thin and patchy crops is a widespread issue, pre harvest treatment may well be required to resolve this.