• An early update tonight, so apologies if I omit any “late” market action!

• The latest fund positions (as at 15 October) show an increased net fund short in corn, the largest since we have been collating data (since Jan ’12). We all know the dangers that lie therein, if the funds decide to cover some or all of their short, the exit door will look mighty narrow and we could see a spectacular price reaction. That said, the fundamentals and technicals do look negative right now, but we have the USDA report on 8th November and that has sprung surprises in the past.

• US export data for the last three weeks was as follows:

Wheat: 1,308,800 mt which was below estimates of 1,500,000-2,000,000 mt.
Corn: 5,293,400 mt which was above estimates of 1,900,000-2,500,000 mt.
Soybeans: 4,742,000 mt which was above estimates of 2,400,000-3,000,000 mt.
Soybean meal: 804,800 mt which was within estimates of 800,000-1,100,000 mt.
Soybean oil: 14,500 mt which was below estimates of 40,000-160,000 mt.

• The corn and soybean sales for the last three weeks can only be described as “huge” and created something of a rally, which proved to be short lived as the market turned lower with front month (Dec ’13) corn hitting new lows once again. (Note this is being written pre-close)

• Brussels continued with another big week of wheat export licences, the weekly total being 583,494 mt bringing the season total to 9.38 million mt, which is 3.382 million mt (56.4%) ahead of last year.

• The IGC (International Grains Council) today issued its latest estimate of global corn output at 948 million mt, which is 5 million mt ahead of their last month’s figure. They also increased their estimate of global wheat output to 696 million mt, which is a 3 million mt increase from last month. Both FC Stone and Informa Economics are scheduled to release US output estimates tomorrow.

• The market continues to have a bearish feel to it, S American weather continues to look favourable and there is little in the way of bullish news right now.

• Chicago grains closed lower whilst soybeans saw modest gains and soybean meal closed either side of unchanged.

• The biggest news today has probably been the reduction in floor price for Indian wheat exports to $260/mt (plus taxes) making Indian wheat competitive in the global market place. Price aside, the only other issue is one of which destination will accept wheat from India, but that is an ongoing issue and is unlikely to change in the short term. CBOT prices closed as much as 1% lower on, or close to today’s session lows. Prices have not seen these levels for the last month (basis Dec ’13 contract).

• Brazil, just to temper the bears, added a further 600,000 mt of non-Mercosur imports – tariff-free – bringing the total to over 3 million mt and placing likely origin as US or Canada.

• In other global wheat news today, we saw the reuters forecasting arm report their estimate for Australian 2013/14 output at 25.29 million mt, an increase from 24.82 million mt a month ago. New South Wales’ reduced yield and output were said to be offset by improved prospects in S Australian Victoria and W Australia.

• Tomorrow’s US export sales numbers, which are anticipated to be large and will include updates covering the period of US government shutdown, are the immediate focus for many, which is possibly why we have not seen much in the way of significant price moves. Should the export figures surprise to the upside and the market rally, we would agree with others that this will provide a further selling opportunity ahead of the 8th November crop report which we would expect to reflect the better than anticipated yields being reported on both soybean and corn.

• Clearly we continue to live in an extremely dynamic and interesting world, seemingly hell-bent on challenging us poor traders and analysts!

• US winter wheat is now 86% planted, up from 79% a week ago, and ahead of the five year average of 85%; emergence looks good at 65%, again just one point ahead of the five year average figure. The corn crop rated at good/excellent is 2% up from a week ago at 62% and is 59% harvested, a massive jump from last week’s 39%. Soybeans are 77% harvested, up from 63% a week ago and on par with the five year average.

• S American rainfall in the coming week looks to be favourable for Argentina and also Brazil. The forecast Argentine precipitation should go a long way towards eradicating some of the drought problems – hopefully improving crop prospects.

• CBOT markets have been mixed with neither the bulls or the bears gaining the upper hand, and interestingly the “turnaround Tuesday” phenomenon not materialising with any significance. Cash markets appear to be remaining firm in the US with limited producer selling and consumers having to pay up if they need supplies. In the absence of any “new” news it would appear to be something of a struggle for prices to either decline or make gains with anything  approaching conviction ahead of the upcoming USDA report. The content of the report could well spark strong moves, particularly if favourable yield numbers and overall output are confirmed.

• In Argentina it has been suggested that import licences are about to be granted in an effort to subdue rapidly rising prices, which are approaching $700/mt – the world’s highest. Import logistics will, no doubt, present some issues and the imminent harvest will present a volume cap. All in all, the prospect of imports could well be considered as something of a “red herring” and of little material effect – as always, time will tell.

• The week has started with CBOT and European markets settling lower, sharply so in the case of corn, soybeans and soybean meal where losses exceeded 2% in some months, and wheat followed suit although losses were confined to (only) around 1.5% in Chicago. It will be interesting to see whether tomorrow springs a not uncommon “turnaround” day and claws back today’s losses. Also of interest has been the return of some volume to the market compared with some of last week’s lighter volume days.

• What has happened to trigger today’s selling? Argentine weather has been somewhat more favourable to corn and wheat planting in recent days despite suggestions that there has been some damage classed as “irreversible” in northern wheat regions. Brazilian plantings are also progressing well. Also, we hear that Egypt is once again claiming adequate stock levels through to mid-February and their next tender is expected in the coming 2 to 4 weeks, as sceptics we wonder if this “news” will be confirmed by their actions in coming weeks. US harvest pressure is also considered to have been a factor in today’s price moves.

• Interestingly farmer selling in the US has not been a feature, storage appears to be the favoured strategy right now. It remains our belief that if this remains a feature for any significant period of time, we will ultimately see significant price declines in a late rush to sell formerly stored crops ahead of S American harvests.

• As the day has progressed selling appears to have turned to a more technical feature with some support levels being breached and (notably) Dec ’13 corn making new contract lows in Chicago.

• The likely trend in coming days is (in our view) unlikely to remain so strongly bearish in advance of the USDA report on 8th November.

• This week has proved difficult to interpret as we see a gradual return to normality within the US government and data flows improve our formerly blind condition. In general terms we have seen a stronger soybean and soybean meal market whilst the grains, corn and wheat, have seen more of a sideways direction to trade.

• For the first time in some months it feels as if there has been more influence being applied by “technical” market considerations than the fundamentals, which have been somewhat lacking in forcefulness. This could well be a consequence of the recent dearth of official data. We anticipate data tonight from the CFTC to confirm the fund positions, which should provide some further clues to market direction, and has been sorely missed given the influence they exercise over our markets.

• We, like the rest of the trade, are looking forward to the USDA report scheduled for release on 8^th November; the big question we want to see answered is whether or not the reports of better than expected yield in corn and soybeans will be reflected in the report’s numbers. Until publication, it seems as if trade is rangebound and almost scared of stepping out of line for fear of getting it wrong. Consumers appear to continue with a hand to mouth policy of purchasing, which does little to break the price inverse seen in cash markets.

• Turning back to the facts, US export data for week ending 3 October showed wheat sales of 24 million bu bringing the season total to 705 million bu, which is an increase of some 45% over last year. Soybean exports at 34 million bu took the year to 1.01 billion bu, 15% ahead of last year whilst soybean meal sales exceeded expectations at 850,000 tons (three times trade estimates) and total season commitments stand at a record 3.9 million tons. Corn sales of 52.8 million bu brought the season total to 629 million bu, up 53% on a year ago.

• Demand for wheat by Brazil continues to underpin the market although it has once again been rumoured (strongly this week) that India may well consider dropping its export floor price by $40/mt to $260 FOB in which case it will become the world’s cheapest export parity. Having said that, there are suggestions that little will happen until mid-November, which in global wheat trade terms is close to a lifetime.

• The announcement by Argentina on Monday that their 8.8 million mt estimated wheat harvest figure, released only last week, was an “error” and did not fully reflect the entire crop, left some room for downside in prices. An updated estimate of output is expected to be released in coming days. Estimates for the crop range widely with Argentina’s BAGE (Buenos Aires Grain Exchange) at 10.35 million mt, the IGC (International Grains Council) at 11 million mt and the USDA’s latest estimate at 12 million mt.

• Stratégie Grains this week published their first forecast of UK 2014/15 cereal acreages. Unsurprisingly, following the poor planting conditions of autumn 2012, their acreage estimates are increased year on year. 2013 planting conditions have been significantly better and fields we have seen show excellent seedbed preparation, good germination and early weed control; all of which bode well (at this time) for significant improvements in overall output. In summary 2014 wheat acres were estimated at 2.016 million ha, up from 1.626 million ha last year, 2014 total barley was estimated at 949,000 ha compared with the prior season’s 1.215 million ha, which was boosted by an increased spring acreage to fill land unplanted to wheat.

• Brussels resumed their sprightly wheat export pace again this week, having drawn breath last week, with weekly certificates amounting to 406,473 mt bringing the year to 8.797 million mt. This total is now 3.275 million mt or 59.3% ahead of this time last year. The rate of export may well be reflecting some of the concerns emanating from the Black sea region, which was the usual early leader in securing export sales. News that contract execution is presenting some difficulties together with defaults and rising domestic prices as well as FOB offers would suggest that the region could well be finished for the season pushing trade west into mainland Europe as well as the US and Canada.

• In summary, we see the US harvest progressing well with limited weather disruption, limited (if any) freeze damage and yield reports continuing to surprise to the upside. What is necessary is for this information to translate into supply pressure and overtake the demand driven burden, which arose from overly tight US, end stocks. We do not believe that there is much question that this will eventually materialise, however the question is more, “When will it happen and relieve front-end price premiums?”

• Markets took a breather and generally eased off, is this a stalling of the recent rally?

• EU export pace picked up again as Brussels issued weekly wheat licences totalling 406,473 mt bringing the season total to 8.797 million mt, which is 3.276 million mt ahead of last year (59.3%).

• Rumours continue to circulate that India is to reduce its floor price for wheat by $40/mt to $260 although it must be stressed that this is not confirmed. Other sources suggest no change until after the mid-November tenders when the situation will be reconsidered. Should the rumour prove true, it will make Indian wheat the world’s cheapest.

• Black Sea wheat is presenting a medley of physical execution issues, defaults and rising interior and FOB prices with little offered on a forward basis.

• Argentine weather prospects have improved with recent moderate to heavy showers in widespread areas bringing some relief to recent dry conditions.

• US export figures showed better than expected soybean meal figures, corn sales were also robust and wheat was within the expected range although many expect Brazilian demand to remain above previous years.

• It’s been another “green” day as far as prices are concerned as CBOT markets close in positive territory as do EU grains. Key factors appear to have been short covering in advance of tomorrow’s export report and concerns exist over larger than expected numbers. Today has seen reports of soybean sales to Russia which have come as something of a surprise to the market, although to be fair this has been highlighted as Russian feed demand grows to feed the increased demand for pork and poultry meat.

• Corn consumption for ethanol production, according to latest figures, is high as profit margins are sufficiently high to encourage production. Reductions in corn price are only likely to add to demand for corn used for ethanol production.

• The looming 8th November USDA crop report has probably more significance than usual given the omission of the October report and the data vacuum which that has created. To put this into perspective we would expect position sizes to be reduced, and a combination of short covering and reduction in longs will no doubt be a feature in coming days.

• Australian weather has become more newsworthy in recent days with the dry conditions, intense heat and wildfires combining to create headlines. Eastern Australia has experienced worsening drought with the added pressure of above average temperatures, which has elevated crop moisture stresses. The last three months have yielded just 40% of normal precipitation. Concern has grown over national wheat output with the latest ABARES forecast in September reduced to 24.5 million mt which is a little more than 3% down on their earlier June output figure.

• EU winter crop conditions are generally favourable with both planting and early development benefitting from what can only be described as almost ideal conditions across the region. Eastern Ukraine and southern Russian conditions have improved markedly following early snowfall and the concern which that raised over plantings. Soil moisture levels have received a benefit from snow melt, and temperatures have risen to levels allowing good germination and development of recently sown crops. The Volga and Black Earth regions of Russia however have experienced more serious planting delays as a result of wet conditions with some 150-200% of average rainfall. Freezing night time temperatures and low daytime temperatures have also been far from beneficial for wheat crop development. Anecdotally, less than the fully planned winter wheat area has been planted which will adversely impact final output.

• The Reuters forecasting arm, Lanworth, has elevated its latest 2013/14 global wheat crop forecast to 707 million mt from 706 million mt. Their corn output number is also increased to 955 million mt fro 952 million mt a month ago. Global soybean output is forecast higher too at 288 million mt from 286 million mt last month.

• Once again, fresh news is thin on the ground. US crop data, now emerging as the government return to work pushes through the system shows inter wheat planting as 79% done bang on the five year average and some 53% emerged, one point below the five year average. Corn is 39% harvested, unsurprisingly below the five year figure of 53% whilst soybeans are 63% harvested, six points behind the five year average. Weather conditions appear to remain favourable for harvest to progress at a good pace.

• Trade today has been mixed with soybeans and corn looking for lower levels whilst wheat has just kept in positive territory reputedly on the back of stronger Black Sea levels. These firmer levels are a consequence of farmers focusing upon fieldwork as they complete corn harvest and concentrate on planting wheat whilst there is a favourable weather window, rather than selling their crops. The likely timeframe for a resumption of farmer selling is within the next two weeks – look for a break in prices if this is the case!

• During the course of the US “shutdown” it is believed that China has purchased 1.2 million mt of corn and 3 million mt of soybeans from the US. We cynically suggested some while ago that a “stealth” tactic could have been adopted by China whilst publicity could be avoided, and the data fits our theory quite nicely!

• Dry conditions persist in Argentina where the last three months have shown sharply below average rains. It is suggested that as much as 100mm is required as a matter of urgency across the soybean belt although the likelihood of this occurring is only around 25% probability. The planting delays in corn and sunflower as a result of the dry conditions may also roll into soybeans if rain does not materialise soon, and early crop development could well be adversely impacted.

• In marked contrast, there is an expectation for significant rains in southern Brazil potentially delaying corn and soybean planting as well as harvesting of wheat but central regions (Mato Grosso) are forecast drier, which will assist soybean planting progress now estimated at 27% (to 17 Oct) but this is at the expense of soil moisture levels.

• EU wheat prices today have elevated the Paris milling contract to Sterling equivalent premiums over London which have not been seen for some time, Nov ’13 Paris reached close to £8/mt premium (on a Sterling basis) and looks to be reflecting the potential tightness in milling quality grains compared with feed qualities.

• Today’s biggest news item has probably been the announcement by Argentina that their 8.8 million mt estimated wheat harvest figure, released only last Thursday, was an error and did not fully reflect the entire crop. They expect to release an updated estimate in coming days. Regrettably the lowballed figure created some upside momentum in wheat futures around the world, and today has seen some downside correction on the news. Estimates for the crop range widely with Argentina’s BAGE (Buenos Aires Grain Exchange) at 10.35 million mt, the IGC (International Grains Council) at 11 million mt and the USDA’s latest estimate at 12 million mt.

• The US harvest continues with cool and dry conditions forecast for the next week to ten days and only limited rainfall predicted.

• Stratégie Grains today published their first forecast of 2014/15 cereal acreages. Unsurprisingly, following the poor planting conditions of autumn 2012, their acreage estimates are increased year on year. 2013 planting conditions have been significantly better and fields we have seen show excellent seedbed preparation, good germination and early weed control; all of which bode well (at this time) for significant improvements in overall output. In summary 2014 wheat acres were estimated at 2.016 million ha, up from 1.626 million ha last year, 2014 total barley was estimated at 949,000 ha compared with the prior season’s 1.215 million ha, which was boosted by an increased spring acreage to fill land unplanted to wheat.

Weekly overview:

• This week ends with a massive “hurrah” as the US debt debacle is finally resolved: or is it?

• The US has agreed to raise the federal debt limit taking “brinkmanship” to its extreme, as national default loomed large and the 11th hour passed by almost unnoticed. The US has raised its $16.7 trillion debt limit and (to coin a phrase used many times) kicked the tin along the road until early February when many believe the same issue will rear its head once again. Regardless, we are now back on a more even keel, data will begin to flow once again and we will no longer be complaining about “flying blind” – apart from the fact that the USDA’s October report is now formally not going to be published, but we already expected that one, and this week’s CFTC fund position reports will also not be published.

• It seems that President Obama’s healthcare bill has emerged relatively unscathed and the Republican House Speaker is claimed to have said, “We fought the good fight, we just didn’t win.” Senator John McCain, the 2008 Republican Presidential nominee stated that (this was), “one of the more shameful chapters I have seen in the years I have spent here in the Senate.”

• Turning back to more market related news almost seems an anticlimax, as fresh news is limited. US harvesting of soybean and corn is progressing with soybeans approaching the halfway mark and corn about a third harvested. The good news is that yields on both crops continue to impress to the upside, and early suggestions that poorer results would be found as the harvest moved north have not (yet) proven correct.

• The weather also appears to have cooperated with frost risk absent to date, although producers continue to focus on gathering soybeans which could be at a greater weather risk than corn should conditions deteriorate. The late summer “flash drought”, as it has been dubbed, appears to have less of an impact on soybean yield than first thought. West of the Mississippi River was hit particularly hard in August, the key period for soybean development, yet yield is being reported at around 5 bu/acre better than expected according to a Reuters report late this week. Corn yields too are bringing some smiles to the faces of producers. There appears to be an east west divide, with the east being the better yielding region. East of the Mississippi River is reported to have consistently better than expected yields whilst to the west the results are more mixed. One thing does appear to be certain, and that is that there are good and not so good yield reports, and it will only be when harvest is complete that we will see the full story.

• There are reports of sharply colder conditions and the first hard freeze of the season developing into the weekend across northern Iowa, Wisconsin, Minnesota and the Dakotas. Late planted crops have had an extended warm period in which to advance and September rains have allowed soybean pod filling to progress, albeit at a slower pace than previously. It remains to be seen whether or not this will have had a positive impact upon yields. The impact of any freeze upon corn is expected to be limited, as the crop is now believed to be sufficiently mature to withstand some frost conditions.

• Looking further afield, good news emanated from Ukraine this week as their AgMin reported that winter planting losses would be “only” 0.5 million ha rather that the formerly suggested 1.5 million ha, they also added that any crop shortfalls would be in barley rather than wheat. Our information suggests that spring plantings in both Russia and Ukraine will favour corn and sunflower rather than wheat or barley. Somewhat less optimistically, there are suggestions that some quality issues are present in Black Sea wheat supplies, and this could become something of an issue for shippers as they load export vessels in fulfillment of their early sales commitments. The impact has been seen upon prices in the region, which have been creeping upwards in recent weeks, lessening their extreme competitive position and making mainland EU prices look more attractive.

• This news did not trigger much activity in Brussels this week as we saw weekly export licences markedly reduced, for the first time this year, with 295,469 mt bringing the season total to 8.39 million mt which is 3.179 million mt ahead of last season (61%). Interestingly, EU corn imports are higher than expected at more than 400,000 mt due to the discount which Black Sea corn commands in relation to mainland EU wheat. Evidentially, we see May/Aug ’14 corn purchases being made by UK feed producers as corn is trading at an attractive discount to wheat on a delivered basis.

• Reuters published a story this week (and we choose this description as opposed to “report”) that China’s COFCO (China’s largest food processing, manufacturer and trader) estimates wheat imports to be no more than 5 million mt in the 2013/14 season. In the aftermath of what is believed to be some substantial early season crop damage, many analysts believe some 10 million mt will be a more realistic import figure, and if we add up US, Australian and French sales commitments to date we arrive at a figure in excess of 6 million mt – hence our opener to this paragraph! Somewhat cynically we wonder if the COFCO story is another example of a “plant” to help move the market in their favour!

• In conclusion, we do not see major weather threats impacting crops or supplies, specifically in the northern hemisphere, and remain of the view that price rallies provide selling opportunities. Our preferred stance is for buyers to maintain a patient profile and look for lower levels at which to take further cover.