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Weekly Update 31 January 2014

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

Wheat: 796,900 mt which is above estimates of 300,000-500,000 mt.
Corn: 1,943,600 mt which is above estimates of 550,000-750,000 mt.
Soybeans: 865,800 mt which is within estimates of 750,000-1,050,000 mt.
Soybean Meal: 188,300 mt which is within estimates of 100,000-200,000 mt.
Soybean Oil: 6,600 mt which is within estimates of 0-30,000 mt.

• Probably worthy of note is the level of corn exports, significantly ahead of expectations (almost twice anticipated levels). This has added a firmer tone to the market today and a watchful eye is now being kept on key resistance levels, particularly in the front month contract. A close above $3.36 could well spark some speculative buying although producer selling and the longer term global outlook would seem well able to limit upside.

• In line with other estimates from a variety of sources, the International Grains Council have released their latest update for 2013/14 global wheat output at 707 million mt, which is a month on month increase of 9 million mt. The global wheat crop for 2014/15 is estimated slightly lower at 697 million mt. Similarly, the 2013/14 global corn crop is estimated 9 million mt higher at 959 million mt compared with last month’s estimated figure.

• Brussels has granted wheat export certificates for the week totalling 648,085 mt, which brings the season total to 18.182 million mt. This is 5.832 million mt (47.2%) ahead of the same time last year.

• Following yesterday’s wheat purchase by Egypt it seems the French, who were left out in the cold by the tighter moisture specification, are a bit miffed! They plan to lobby the Egyptian authorities and stress how important French wheat is to them and their import programme. The French plan to tell Egypt that it is not in their best interests to reduce contractual moisture levels, not because they traditionally grow to 13.5% in France and it would cost an additional €1 to dry down, but because non-French sellers would look for higher prices if French wheat was not physically able to be shipped to Egypt. It sounds a bit like “throwing toys out of the pram” to us, but it will be interesting to see how Egypt reacts and if they do anything about it in their next tender.

• Today has been a big down day both sides of the pond with fallout from Egypt’s latest tender, which effectively leaves France out in the cold potentially with surplus supplies in need of a home. US wheat hit lows not seen for some years and the tone has been undeniably weak. Soybeans have tested their recent harvest time lows and corn has been the passenger, willingly or otherwise.

• Soybean cancellations by China are a feature of the rumour mill albeit there is no confirmation (yet) of such rumours. However, the widespread nature of the rumours suggest there may be “no smoke without fire”. Again, such talk adds to the overall negative tone in today’s marketplace.

• Added to the above, soybean cargoes are loading in Brazil, and the pace of loading is suggested to be brisk. With the Far Eastern Lunar New Year holiday approaching this weekend and the holiday period it will create, it is difficult to become too friendly to market upside right now.

• Egypt has once again ventured into the wheat market, this time securing 240,000 mt for shipment in the first ten days of March, of which Russia secured the lion’s share with 180,000 mt, the remaining 60,000 mt being awarded to the US. This brings January purchases to a total of 1.13 million mt, prices on this occasion appear to have been below $300/mt basis C&F reflecting cheaper levels in the face of higher confidence in global supplies. Additionally, the switch back to corn feeding in the US, away from wheat, and the move in Europe towards cheaper corn and away from wheat, leaves more wheat available to meet international trade demand – at cheaper levels.

• It is probably fair to say that the Russian supply was unexpected, with many (including ourselves) believing their early season export pace would have left them all but done by now. Perhaps the surprise was the additional supply criteria, limiting the moisture content to max 13%, which has left EU suppliers and notably France, where 13.5% is the norm, out in the cold. Clearly, Egypt’s GASC is getting somewhat confident in its ability to source supplies. MATIF wheat ended the day lower with Chicago trading slightly higher an hour before the close.

• We would expect to see further Egyptian purchases before they shut up shop in advance of its own harvest.

• We have previously referred to cold conditions affecting northern Europe and Baltic States and these have moved to Poland, eastern Germany and Sweden with temperatures dropping to –20 ℃ (-4℉) in Latvia, -18℃ (0℉) in Poland and -13℃ (8℉) in eastern Germany. Limited snow cover across the Baltic States, less than 1 cm, leaves some degree of winterkill likely despite the wheat crop being at its least vulnerable growth point.

• Despite the localised cold weather it is difficult to envisage sufficient damage to sustain anything of a long term price rally in wheat. Old crop supplies appear plentiful (see comments above) and new crop prospects continue to look favourable. Just one example would be India who is staring at what many are calling a 100 million mt wheat crop, due to be harvested in less than two months, following on from what appear to be plentiful old crop stocks. We would be averse to long wheat positions right now.

• The week starts with slightly firmer grains (corn and wheat) and a slightly weaker soybean complex.

• Saudi Arabia is reported to have purchased 715,000 mt of wheat in its latest tender, shipment is scheduled for April to June 2014. The origins are not known, but Europe, N and S America and Australia were the acceptable origins in the tender. This purchase marks another large transaction following in the wake of last week’s spree.

• The Brazilian soybean crop is reported to be 3% harvested, and increase from 1% last week and compares with 2% last year.

• The easing of controls in Argentina, announced last week, have seen the finance minister backtrack on details. It seems that the tax rate on US dollar credit card purchases, which was supposed to be reducing from 35% to 20%, will not now be happening. The tax was levied last year in advance of the holiday season, and was aimed at stemming the flow of the US currency out of Argentina. The woes befalling the Argentine Peso have been widely reported, and Friday’s black market rate (US$/Peso) moved from 11.8 to 13 on the back of last week’s news whilst the official rate held steady at 8.0.

• The US weather continues cold (bitterly so in many areas) and will likely provide some price support. Our view remains that such a situation will provide selling opportunities.

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Weekly Update 24 January 2014

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• Following on from yesterday’s international wheat buying spree by Algeria and Iraq we have today seen a further tender, this time by Saudi Arabia for 660,000 mt. Clearly the prices which we are seeing at present are deemed attractive to international milling wheat buyers. The activity, and its size, is providing some support to wheat markets both in Europe and in the US where gains have been seen today following losses in recent days.

• In addition to good volume international trade, the cold temperatures being experienced in the central US is also lending some broad market price support. It appears that farm grain movement is slowing as a result of the cold and there are concerns over both frozen waterways and winterkill. In Russia too, the cold is not only intense but moving south and potentially threatening wheat crops within the greater Black Sea region. Whilst it is too far early to suggest “how much” damage may be done, there appears to be sufficient evidence to raise awareness of the issue.

• Brussels has issued (yet) another big week of wheat export licences with this week’s tonnage reaching 869,254 mt. The season total now stands at 17.554 million mt, which is 5.674 million mt (47.8%) ahead of last year. If anything, the pace of exports is increasing rather than slowing down and a huge end os season total should come as no surprise.

• S American weather continues to provide a positive tone with decent rains in S Argentina, with more in the forecast, and dryer conditions prevailing in N Brazil, which is assisting the harvest progress.

• International wheat markets have seen a brisk day today with Algeria reported to have purchased 500,000 mt of optional origin milling grade wheat for delivery in Apr/May ’14. It is thought the origin will likely to be French. Iraq’s state grain board has also purchased hard wheat, 250,000 mt from Australia and 100,000 mt from Canada for shipment in Apr/May ’14.

• Yesterdays selloff in soybeans and soybean meal, triggered by beneficial rains in needy southern and central Argentina and the promise of more in coming days, saw some follow through today although two sided trade was the order of the day. It is believed that these rains will be of great benefit to the development of the soybean crop although the sunflower crop is probably too far advanced to take advantage of the recent moisture.

• It feels as if US soybean exports to China will decline by some magnitude in coming weeks as improved export availability in S America and a slowdown in overall shipments to China take effect. China is in a more comfortable stock position than was the case a year ago and high prices nearby together with reports of larger than expected yields, particularly in Brazil but also Paraguay, may well prompt Chinese buyers to either delay or cancel shipments of US soybeans.

• Weather conditions in Russia have turned sharply colder with Saratov, a winter wheat region in Volga, moving from 0℃ (32℉) to –18℃ (0℉) in the space of less than a week. Fortunately a blanket of insulating snow has fallen ahead of the freeze and winterkill is not viewed as a serious threat right now. In the central district, northeast of Ukraine there could be some damage from –18℃ (0℉) temperatures which lasted several nights with poor snow cover. Four key wheat districts are reputed to be affected, Kursk, Belgorod, Voronezh and Tambov. Previously the threat of winterkill was deemed high due to planting delays and fears that the crop would not reach dormancy in a timely fashion, however unusually warm conditions have alleviated much of the threat . Concern has moved to dry conditions experienced in the southern region of Russia where much needed precipitation is required to restock parched soils in the 4 main wheat districts Krasnodar, Stavropol, Rostov and Volgograd that together produce 60% of wheat.

• CBOT grains (corn and wheat) are little changed despite nearby soybeans and soybean meal shedding 2.7% and 4% respectively as old crop vs. new crop spreads are unwound as the trade return from an extended holiday weekend. Rains in S America, particularly the needy Argentina, over the weekend have undoubtedly added to today’s weaker tone although Wednesday will doubtless see some recovery of losses based upon profit taking.

• There has been news, although unconfirmed, that up to three cargoes of US soybeans have been switched to Brazil for late February shipment.

• Official Chinese customs data has shown that corn imports in December reached 637,045 mt, a 19% decline from November’s level. The rejection of cargoes for GM contamination is blamed for the reduced volume. The December data brings total imports to 2.97 million mt, a 42% reduction from last year. DDG imports grew in December to 515,760 mt, which is a slight decrease on November’s 538,498 mt.

• Staying with Chinese news, they have announced an end to the government reserve purchase programme in 2014, farmers will receive subsidies rather than guaranteed minimum prices, which is the current position. The announcement, flagged a week or so ago, is perceived as predominantly bearish for prices as prices in China will now be able to reduce as world levels decline.

• In Brazil’s major soybean producing states, Mato Grosso and Parana the harvest is progressing; as of 16 January Mato Grosso was reported to have gathered 4% of the crop with yields described as “impressively high” at 3.1 – 3.3 mt/ha from early maturing varieties. It is too early to see the harvest impacting exports with only 25,000 mt reported to have been shipped. Port facilities in Paranagua are being made available for soybeans from 16 January with a temporary restriction on corn exports now in force thus freeing up capacity for soybeans. It is anticipated that Brazilian soybean export pace will reach 2 million mt in February, at least 4 million mt in March before jumping up to 7-8 million mt in April and May, which will help to alleviate the massive export demand being experienced this year.

• Little to add today as the US is on holiday – Martin Luther King Day.

• Egypt have stated they have  enough wheat to last until early May, but they keep making statements like this then stepping into the market again! Watch this space.

• Russia’s SovEcon have forecast 2013/14 grain exports higher at 22 million mt, up from 16.3 million mt year on year and above the official AgMin estimate of 20 million mt. Higher than anticipated corn exports are cited as the reason for the higher numbers.

• Brazil’s AgRural have lowered their estimate for the 2013/14 soybean crop to 88.8 million mt from 89.4 million mt year on year as a consequence of sporadic and irregular rains in some regions.

• The HGCA have reported, in their weekly summary, a bearish comment for wheat based on declining feed demand due to mild weather conditions as well as competitively priced corn (maize) being substituted in feed diets. They still do not seem to have picked up on increased barley usage in feed, which is also displacing wheat.

• MATIF wheat hit a three month low in trading today – presumably the market is at last recognising the ample global supply position. Following Friday’s CBOT close, which saw the front month contract close marginally above a three and a half year low, it was only to be expected that EU markets would be under a degree of pressure – and so it was. There appears to be little in the way of relief of pressure on wheat prices, Mar ’14 MATIF corn closed at €172.25, well below Mar ’14 wheat, which closed at €190.75.