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Weekly Update 28 February 2014

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

Wheat: 564,900 mt which is above estimates of300,000-500,000 mt.
Corn: 842,300 mt which is above estimates of 475,000-775,000 mt.
Soybeans: 642,900 mt which is within estimates of 400,000-800,000 mt.
Soybean Meal: 264,500 mt which is above estimates of 100,000-250,000 mt.
Soybean Oil: 1,600 mt which is below estimates of 10,000-30,000 mt.

• Whilst on the subject of exports, Brussels have today released details of the latest weekly wheat export certificates, and running true to form they have maintained the substantial pace with a weekly total of 968,818 mt, which is the largest weekly total this season. It brings the year to date figure up to a massive 21.286 million mt, which is 6.935 million mt (48.3%) ahead of last year’s same time total.

• Despite the large EU wheat export figure for this week, the EU was not a successful tenderer in the latest foray into the market by Egypt’s GASC today. They secured a total of 295,000 mt for second half March shipment in what looks as if it could be their last tender before their harvest which should commence in April. Russia gained 235,000 mt with Romania securing the remaining 60,000 mt. French offers looked to be between $9 and $15 (basis C&F) too high, and the US soft red offer around $19 (again basis C&F) over the dearest of today’s actual purchases. Interestingly, the US FOB offer was competitive, it was the freight which killed it.

• The soybean markets have experienced a flurry of excitement today with the market gapping higher on the opening and making strong gains (to $14.52/bu basis Mar ’14 contract) as buying appeared to reach panic at one time. (March ‘14 soybeans enter first notice day today.) As we approach the close (15 minutes to go) the gains have been eroded and the Mar ’14 contract is back into negative territory and close to the low of the day. If we gap lower tomorrow we could well be looking at a bearish “island top” formation which would likely pave the way to yet lower levels – we will be watching with interest! Price action in soybeans with its associated volume has all the hallmarks of an “exhaustion top” and we would council extreme caution to any who may consider “jumping on the bandwagon”. We would refer to our last night’s commentary about the “express elevator” down to the ground floor.

• In other news, the International Grains Council added 1 million mt to their estimate for 2013/14 world wheat this month with a figure of 708 million mt. 2013/14 global corn output was left unchanged month on month at 959 million mt.

• It seems we were only recently talking of soybeans “flirting” with the $13/bu level, and here we are yesterday and today “flirting” with $14/bu, a price last seen in mid-September 2012 on the front month Mar ’14 contract. It was actually three weeks ago that the contract was re-testing $13/bu and we have driven higher almost without pause for breath since. It should be remembered that prices, and their movement, can be likened to movement within a high-rise building – the climb upwards is via the staircase, and the return to ground level is via the express elevator (lift), so caution should be exercised. Similar parallels can be drawn to soybean meal and our observation in that market would be the same as with soybeans.

• Closer to home, the MATIF wheat market has tested, and broken, the psychologically important €200 level, basis the Mar ’14 contract, although with CBOT wheat closing over 2.5% down today it is likely we will see lower numbers in tomorrow’s market.

• There has been a discussion that Egypt’s GASC will review the 13% moisture maximum that it imposed on its last tender, and if this is the case, and we see a further tender, this will potentially favour French sellers. At the same time we still have the “fun and games” in Ukraine with political posturing very much to the fore. The impact upon Ukraine’s FX reserves should not be underestimated, and their standing in international grain markets for the remainder of this season, and (more importantly) next season should be kept in mind.

• It has not been in the forefront of the news, but the oat market has rocketed in Chicago in recent days with a limit up move yesterday and continued strength today all predicated on Canadian shipping difficulties which have been well documented. The fact that supplies exist but logistical issues have prevented them reaching market is important because the moment a logistical solution is reached we will likely see a collapse in price (express elevator – see above). The potential synergistic effect on other grains should not be missed.

• Markets showed an early inclination to set lower levels albeit these were frustrated later in the session as prices moved upwards and eventually closed in the green for another day.

• It has been a day of confusion as reported data was not fully believed by the market, and in some cases was considered to be diametrically opposed to the “facts”. The two main items involved were a reported sale of old crop US soybeans (568,000 mt) to “unknown” destination, which many felt was old news or would not ultimately ship, and others felt the report should have referred to a cancellation. However, later reports suggested the buyer to be China, which left still more confusion in the market. The other piece of news was a reported cancellation by Egypt of 110,000 mt of soft red wheat, which triggered selling as traders questioned (once again) both solvency and further demand in Egypt.

• The soybean sale (to China) makes little sense in view of their current stock position and scheduled arrivals as well as their efforts to either defer or cancel nearby shipments as crush margins continue to decline rapidly. Brazilian soybeans are on offer at good discounts to US supplies, hence the confused reaction to the news.

• The Egyptian cancellations are believed to be by private buyers rather than by GASC. The news hit shortly after Reuters reported that the Egyptian government has approved financial guarantees amounting to over $75 million for wheat imports. This has led to speculation that a further 500,000-700,000 mt could well be tendered for before new crop supplies become freely available. Once again we hear that Egypt’s stock is “sufficient” to last until mid-June, although we have heard that before!

• There is little in the way of fresh news with the Brazilian harvest progressing well; it is expected that close to 40% will have been gathered by the weekend and yield data to date supports a crop in the region of 89-91 million mt. EU and Black Sea regions have seen little in the way of weather damage to overwintering crops, although it will be springtime before a complete assessment can be made. Ukraine appears to be reopening for business and the risk premium associated with the recent uprising has eroded fast although is is reported that Moscow is “angry” over the recent events! The east/west political split within Ukraine will bear watching in coming weeks in case it escalates once again and raises the spectre of supply disruption once again.

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Weekly Update 21 February 2014

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• Probably the most interesting item on today’s agenda has been the USDA’s Outlook Conference from which we see the 2014 US soybean acreage at 79.5 million acres, an increase of 3 million year on year. Corn on the other hand is seen at 92 million acres, which is a 3.4 million acre decline from last year. Total wheat acreage at 55.5 million acres is a 700,000 acre decline year on year. In addition to acres, the Outlook conference projected average cash prices with soybeans at $9.65/bu, corn at $3.90 and wheat at $5.30.

• Nearby soybean cargoes are, once again, the subject of Chinese cancellation discussion, and rolling forward is also on the table as stocks at destination are reported to be growing as crush margins decline. We are all aware of the “switch off” which can take place in Chinese crush if margins drop into the red, and this will impact shipment programmes.

• Reuters have today reported on congestion at Brazil’s Santos port. Road access, truck parking limitations and bureaucratic issues combine to hinder the export of what looks like a record soybean harvest.

• Brussels has issued weekly wheat export licences amounting to 860,029 mt bringing the season total to 20.318 million mt, which is 6.4 million mt (46.16%) ahead of last season. Despite last week’s tonnage decline, which many suggested would pave the way for a “tail off” into the end of the season, we see another big week of exports. When will it end?

• An interesting day with CBOT markets following yesterday’s upside price moves this morning before soybeans and soybean meal began to unwind some of the gains and push lower. Corn and wheat declined to follow the soy complex lower and continued higher into the close.

• Strong producer selling in S America as well as the US has been noted and has undoubtedly capped, and probably reversed, some of yesterday’s gains. S American weather contains rains of significance for north Argentina and Brazil in coming days and will be welcomed, particularly by the bears who have been wrong footed recently by reports of hot and dry conditions. Rain brings with it mixed feelings; harvest and ship loading delays offset by crop benefits. However, the consensus appears to favour a neutral stance with the weather neither harmful or overly beneficial. As a minimum, the forecast rain is likely to stem further losses from hot and dry conditions. It is clear that the Brazilian soybean harvest is progressing swiftly and export vessel loading is also ramping up in volume.

• To counter some of the reduced Brazilian soybean output forecasts which have been released recently, ABIOVE (Brazilian Association of Vegetable Oil Industries) has increased its estimate from 87.6 million mt last month to 88.6 million mt today.

• In Canada the AgMin has forecast the 2014/15 planted wheat area to decline 6% to 24.7 million acres with output at 29.3 million mt, a reduction of 22% year on year. Stocks however, are forecast at 11.8 million mt, almost double the prior year’s level. Canola (rapeseed) area is forecast 8% higher at 21.6 million acres with output down 11% at 16 million mt and stocks 3.3 million mt, five times the previous year’s figure.

• Russia’s planned intervention wheat purchases have reached 610,000 mt, well below the anticipated multi million level previously suggested. Total stocks are reported to stand at around 1.8 million mt and we understand no further intervention tenders are to be held this season. There are suggestions that sufficient free stock exists in both Russia and Ukraine to meet any late season buying that may still emerge (Egypt is likely to require one, or maybe two, further tenders for March and/or April shipment). The recent rally in CBOT prices will likely eliminate the US as a competitive source for the time being effectively leaving EU and Black Sea origins to fight it out between themselves.

• It has been a positive return to work following yesterday’s President’s Day holiday, at least as far as prices are concerned. 2% gains in wheat, 1% gains in corn and 1.75% gains in soybeans with nearly as much in soybean meal – a sea of green has been the colour of screens today!

• Key triggers may well have been the reduction by Brazil’s AgRural who have reduced their estimate of the Brazilian soybean crop to 87 million mt, down from their last month’s estimate of 88.8 million mt due to concern over recent dry conditions. For reference the Brazilian AgMin is at 90 million mt and USDA at 89 million mt (up from 88 million mt a month ago).

• Of note is the pace of the Brazilian harvest, which will be 25% done before the week is over and a reported 22 million mt already “in the bin”. It is expected that 40% will be harvested by the end of February and beans being received by both crushers and exporters are reportedly of excellent quality. The current market strength is being stimulated by consumers covering nearby “shorts” having been wrong footed in their (and our) expectation of prices falling earlier than is actually the case.

• The consumer covering has undoubtedly added a “trigger” to the funds who appear to be adding further to their longs. It is also interesting to note that producer selling has been very much in evidence including in S America, including Argentina where producer hoarding has been very much a recent theme due to the difficult (to say the least) fiscal situation.

• The rally is soybeans is attracting sellers, and we would expect that there will be sufficient selling activity to limit upside.

• In a slightly different vein, the recent weather anomalies in the US, cold in the midwest and drought in the southwest, appear to bear the hallmarks of La Niña. Snow cover is present across much of the midwest corn fields up to 18 inches in depth, although temperatures are predicted to ease somewhat this week allowing for some thaw and melting. In contrast, southwest US states into the Great Plains have experienced further drought conditions, which may well threaten hard red winter wheat. Whether or not the La Niña phenomenon will build and develop is something that will be watched with interest in coming weeks.

• The question we ask tonight is, “will Wednesday show us a turnaround Tuesday?”

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Weekly Update 14 February 2014

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• Another “up” day today in Chicago, well – almost, corn closed about unchanged whilst wheat and the soybean complex saw some reasonable gains. S American soybean meal FOB export prices gained, as did Rotterdam, on news of tight supplies. No doubt in a few weeks this will change significantly as availability picks up. News that S American weather conditions are cause for concern has met with a mixed response; too wet in some of the soybean belt and overly hot and dry in some regions of Brazil. The only response will be when harvest is finalised and output truly known, it seems almost inconceivable that anything less than a record Brazilian crop could be produced.

• It is estimated that Brazil’s soybean harvest will reach 20% complete by the weekend and reports continue to suggest yield levels are good, to say the least.

• Consumers appear to be covering near term supplies adding support to front month contracts, and this has been a feature for some while now. No doubt buyers will be looking for some near term respite and an easing of premiums before too long.

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

Wheat: 626,600 mt which is within estimates of 450,000-750,000 mt.
Corn: 1,349,900 mt which is above estimates of 800,000-1,200,000 mt.
Soybeans: 296,200 mt which is below estimates of 600,000-950,000 mt.
Soybean Meal: 232,700 mt which is within estimates of 150,000-300,000 mt.
Soybean Oil: 53,300 mt which is above estimates of 10,000-50,000 mt.

• Brussels has issued weekly wheat export licences totalling just under 350,000 mt, which brings the session total to 19.458 million mt. This is 6.181 million mt (46.6%) ahead of last year’s same time total.

• In a news release earlier today the USDA reported that US farmers would likely plant less corn in 2014, preferring to sow wheat and soybeans instead. The corn acreage for 2014/15 was forecast at 93.5 million acres, a reduction on the latest 2013/14 figure of 95.4 million acres. Soybean acres were projected for 2014/15 at 78 million, an increase from 76.5 million, and wheat acres were estimated at 57 million, up from 56.2 million. In the same release, the USDA projected Chinese soybean imports to grow in 2014/15 from this year’s expected 69 million mt to 72.8 million mt.

• Stratégie Grains raised its estimate for 2014/15 soft wheat exports by 1.2 million mt to 21.7 million mt (month on month), which compares with their 2013/14 estimate of 24.3 million mt (lower than our current estimate). Soft wheat output for 2014/15 was reduced slightly, by 200,000 mt (month on month) to 137.5 million mt, compared with 134.6 in 2013/14 million mt. End of season stocks for 2014/15 were cut by 2.7 million mt to 15.8 million mt (month on month), compared with the 2013/14 figure of 13.1 million mt. The number, whilst a month on month reduction, still shows significant annual growth which is the cornerstone of our long term price view, which (in case anyone was unclear) is broadly bearish.