• Today’s USDA figures contained a few surprises but not shocks, as has been the case in prior years. It is probably fair to say that the general view is that the report is pretty much neutral. We will now be watching the weather and how it develops into the early summer.

• For the record, stocks of corn were reported at less than average trade estimates, 7.006 vs. 7.099 billion bu, however it must be borne in mind that this will be the 4th largest on record! March 2010’s stocks were reported at 7.694 billion bu, this year’s figure is (only) 688 million bu lower. Seedings for the 2014 season were estimated at 91.691 million acres, below average trade estimates of 92.748, well below last year’s figure. Such a level will be the lowest acreage since 2010’s 88.2 million acres.

• Soybean stocks, at 992 million bu are below last year (only just) but higher than average trade estimates. 2014 seedings are estimated at 81.493 million acres, which if achieved, will be a record, an increase on last year and above average trade estimates. An average yield of 45 bu/acre, based upon the estimated acreage, would provide a record large output of 3.612 billion bu leaving end stocks to nearly 400 million bu. This is a bearish number!

• Wheat stocks at 1.056 billion bu were above average trade estimates of 1.042 and all wheat seedings at 55.815 million acres were mid-range but below the average of trade estimates.

• The eagerly anticipated report is out, and will tomorrow be fish and chip wrappers, so where now? Whilst we may well have seen a supportive March corn stocks figure, fundamentally, given “normal” spring and summer growing conditions there is a substantial downside risk to corn prices, which will, in turn, impact wheat prices – adversely.

• The key now, and into the next few months will be weather in the central US and world. Potential does exist for delays in seeding, as we have previously discussed, but it appears there is a fast building El Niño weather pattern, which leaves little chance of a summer drought.

To download the report summary in pdf format please click on the link below:

USDA 31 3 14

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

Weekly Update 28 March 2014

Our weekly fund position charts can be downloaded by clicking on the link below:

Fund positions

• Today saw a further week of massive EU wheat export licences granted by Brussels, which saw both London and Paris making gains. The week’s total hit 900,408 mt, which brought the season total to 23.966 million mt. This is 7.298 million mt (43.8%) ahead of last year. To hit the USDA’s latest 29 million mt EU wheat export total it is only necessary for weekly exports over the remaining 15 weeks of the season to hit 335,573 mt. Lack of Black Sea exports and ongoing corn imports make this look a certainty rather than a possibility right now.

• EU weekly corn import licence volume hit 501,000 mt bringing the season so far to 10.1 million mt, which is 16% higher than the same time last season. In the UK DEFRA increased its estimate for corn imports for 2013/14 to 2.01 million mt, higher than last year’s 1.69 million mt. There was an expectation of reduced corn imports into the UK after 2012/13 saw increased volumes due to the weather damaged wheat crop quality, thereby necessitating feed quality grain imports. It would seem that the UK feed manufacturer has developed an appetite for corn, no doubt driven by the price discount it has enjoyed, compared with wheat, and allowing an inclusion level of some 11% in average feed diets. Doubtless, increased supply from Ukraine who proved a competitive seller, particularly early in the season, has aided the situation.

• Chicago wheat rallied lat on in the session on suggestions of damaging frost conditions across Russia although there has been no corroboration – so far. US wheat growing conditions in the US have taken a turn for the better with improved precipitation, and a wetter outlook.

• Further Chinese soybean cancellations/washouts are again reported to be in discussion, the latest news suggesting that financing (in the form of letters of credit) have become more difficult as crush margins remain strongly negative and Bank of China restrict speculative interest by forcing early LC opening and therefore flat pricing rather than the previously more relaxed stance which left cargoes priced on basis.

• US weekly exports were reported as follows:

Wheat; 727,900 mt which is above estimates of 325,000-475,000 mt.
Corn; 1,436,700 mt which is above estimates of 525,000-725,000 mt.
Soybeans; 546,800 mt which is above estimates of 100,000-250,000 mt.
Soybean meal; 189,500 mt which is within estimates of 100,000-200,000 mt.
Soybean oil; 3,900 mt which is within estimates of zero-50,000 mt.

• Finally, the International Grains Council has released its latest forecast for 2014/15 global wheat output at 700 million mt, which is down 9 million mt year on year. Corn, on the other hand, was estimated at 961 million mt, an increase from 959 million mt year on year.

• Ukraine’s 2014 grain harvest is likely to fall by 9% to 57.3 million mt, a decline from approximately 63 million mt in 2013, according to analysts APK Inform. A reduction in planted area due to capped funding from banks was cited as key to the reduction. Wheat was estimated at 19.2 million mt against 22.3 million mt in 2013 and corn was forecast at 29 million mt versus 30.9 last year they said. The Crimean peninsula was excluded from output following the recent Russian seizure. Spring sowing has progressed well with over half the expected area now planted although some expect as much as 20% to remain unplanted due to lack of financing.

• In almost the same breath, Russia expect Crimean accession to boost their grain output by as much as 2 million mt according to their Agriculture Minister. 2013 grain output was stated at 92.4 million mt, and 2014 was estimated to be 97 million mt in addition to that of Crimea. Seemingly Ukraine’s loss is Russia’s gain!

• Markets today have displayed further weakness in the grains, particularly wheat where Chicago is down 1.5% and London down by more than 1%. Corn too is weaker whilst soybeans and meal are just in positive territory. CBOT volumes are reported to be low and it is reported that EU soybean meal consumers are pricing ahead of Monday’s report, particularly in S American product.

• Chicago markets have displayed a slightly weaker tone in the grains today with soybeans (and products) making only slight gains. It appears that markets are slow with the stocks and seedings report looming on the horizon (Monday). Unsurprisingly there are few who wish to have significant exposure ahead of the report and we would expect to see further liquidation of positions before publication.

• Reports continue to circulate over the number of Brazilian soybean cargoes which have been sold by China into the US. The number is debatable but about half a million mt is widely discussed – so far.

• Informa Economics, the private analysts, today released their estimated US planting acreages, which did little, if anything, to the market. Soybean acres were reduced to 81.204 million acres, down from 81.264 million. Corn acres were 93.029 million, down from 93.319 million. Spring wheat plantings, excluding durum, were forecast at 12.298, an increase from 12.098 million. Given the relatively small changes it is little surprise that market impact was minimal.

• Following hot in the footsteps of the turmoil in Ukraine, we hear from AgroConsult that a new record has been reached for export volumes with more than 25.1 million mt of grain and 2 million mt sunflower seed oil leaving the country in the July to March period. In 2012/13 the same period grain export figure, for comparison purposes, was 17.5 million mt. Despite the recent troubles it is estimated that over 2 million mt of grain has been exported in the first 24 days of March. Of this figure only 157,000 mt is wheat but 1.85 million mt is corn, reinforcing the nation’s status as a (significant) exporter of corn. Clearly, it is important not only to Ukraine, but also to importing nations, that the recent territorial dispute with Russia is not permitted to interfere with crop production or exportability.

• SovEcon reported that 2014/15 grain exports will be 22 million mt, a reduction from an expected figure of 14.1 million mt in the current marketing year to end June 2014. In the same release they increased their estimate of 2014 grain output to 88 million mt, a 2 million mt increase from their last estimate, but lower that 2013, which saw a grain harvest of 92 million mt. SovEcon did not break out separate figures for wheat or wheat exports.

• Reuters report on further rejections of US corn by China, again for non-approved GM contamination with MIR 162. The total tonnage rejected by China in five months stands at 908,800 mt according to the news agency. Anticipation of sales of domestic stocks from state reserves or cheaper supplies from Ukraine are also a likely driver of the latest rejections. The country is reported to hold some 90 million mt of corn in national stockpiles, and is expected to release some of this for sale before long.

• Volatility remains the order of the day to day with CBOT markets trading lower and higher before ultimately settling in the green at higher levels. Wheat markets seemed to get the “jitters” on continued Ukraine unrest as well as continued concern over dry conditions in the US. Funds were reported to be active, particularly in wheat, albeit in low volumes but sellers have been noticeable by their absence. Corn followed, as is often the case, in order to maintain something of a credible price relationship to wheat.

• News of Chinese efforts to delay or switch soybean shipments continues to be rife, although the impact on the market, as evidenced in pricing today, is minimal. It has been suggested that up to 1 million mt of S American soybeans will find their way into the US prior to the US harvest, and this is in addition to supplies already in progress from Canada.

• Regardless of tonight’s closing prices, there has been little in the way of fresh and bullish news to support direction. On the back of this we are sceptical of whether it is possible, or practical, for current pricing to remain at current levels for long.

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

Weekly Update 21 March 2014

Our weekly fund position charts can be downloaded by clicking on the link below:

Fund positions

• Today has been interesting with the soybean and wheat markets initially pushing higher before easing into the afternoon. Corn bucked the trend with prices easing from the outset. Yesterday’s wheat rally may well have proved too much and too fast allowing profit taking today, no doubt time will tell. The price reversal in soybeans may well be a result of further attempts by one large Chinese soybean purchaser attempting to sell up to six cargoes (360,000 mt), sourced from Brazil, to the US. China has already cancelled  up to 600,000 mt of S American soybean cargoes scheduled for shipment in the Mar/May position on account of negative crush margins. Additionally, Reuters report as many as 30 further cargoes from S America being renegotiated to allow a shipment delay of a month.

• Interestingly, the USDA has warned that China “may” have to pay premium prices to import corn in future due to their status as a “risky customer”. Rejection of cargoes due to the non-approved GM event, MIR 162, has left a sour taste in the mouths of sellers, and according to officials, “the Chinese are going to have to learn that their actions will have consequences.” Strong words indeed!

• News that US soybean exports for the week were 639,700 mt which is above estimates of minus 100,000 mt (on account of anticipated cancellations) to 300,000 mt added to underlying market price support. The remaining export figures were as follows:

Wheat; 597.00 mt which is above estimates of 250,000-500,000 mt.
Corn; 745,800 mt which is above estimates of 400,000-700,000 mt.
Soybean meal; 486,900 mt which is above estimates of 100,000-200,000 mt.
Soybean oil; which is within estimates of zero to 50,000 mt.

• On the subject of exports, the pace of EU wheat exports continued with Brussels granting weekly licences totalling 600,024 mt, which brings the season total up to 23.066 million mt. This is 6.874 million mt (42.5%) ahead of last year. To hit the USDA’s latest EU export total of 29 million mt, which was increased by 1.5 million mt on 10 March, weekly export licences will have to average just over 395,000 mt per week for the remaining 15 weeks of this season. Given concerns over Black Sea exports, with the Ukraine/Russian situation, it feels as if there could be greater opportunity for the EU as an exporter.

• Stratégie Grains’ latest update confirms that winter cereal development conditions remain good and spring plantings to be under way. Overall feed demand across the EU is revised upwards with a consequent upward revision in cereal consumption. Soft wheat output for 2014/15 is revised upwards by 200,000 mt month on month to 137.7 million mt, an increase from 2013/14’s 134.9 million mt. 2014/15 predicted exports were up 700,000 mt Monday at 22.4 million mt, which is down on 2013/14’s estimated 25.6 million mt. Barley output for 2014/14 is also revised higher month on month to 55.4 million mt, an increase of 400,000 mt, and compares with 2013/14’s figure of 59.7 million mt. EU corn output for 2014/15 is increased 100,000 mt month on month to 65.2 million mt, which is 800,000 mt higher that 2013/14’s 64.4 million mt.

• The Cereals Event in Geneva this week has heard that global corn production is set to hit record levels in 2014/15, which will increase stock levels. This appears to confirm the picture we have outlined, and one which the USDA’s latest numbers also suggest. Output for 2014/15 was predicted to hit 978.4 million mt, an increase from 967.5 million mt in 2013/14 according to the president of conference sponsor AgResource Co. He went on to predict a slowdown in red meat consumption and a 2014 peak in US biofuel consumption, which would result in reduced corn consumption and a consequent stock build.

• The Ukrainian ambassador to the UN has reported on indications that Russia may be preparing “military intervention” in east and south Ukraine. This was denied by a Russian diplomat, but regardless of statements and denials the level of concern over the region has certainly not reduced.

• Chicago wheat has been the talk of the day with the $7.00/bu mark being hit solidly and the resultant follow through taking gains to over 3%. This assisted European markets to higher levels. The drivers for todays gains in wheat were continued dry conditions across the Plains and further tension between Russia and Ukraine where one military death has been reported in the, so far, bloodless “takeover” of the Crimean peninsula. Black Sea region trade is “normal” according to the Ukraine AgMin, and that appears to be the case as far as corn exports for March are concerned, wheat and barley movement out of Ukraine is very limited, whether this is a result of the tensions or end of season remains to be determined.

• Chicago corn attempted higher prices on the back of wheat but closed off the highs of the day. On the back of nervousness we have seen funds adding to their already large positions, which as previously mentioned, creates additional risk in coming days and weeks should they decide to offload. This is particularly relevant as we approach the 1 March stocks and seedings report scheduled for release on 31 March.

• Soybeans also made gains, but also closed off the day’s highs. Further reports of Chinese selling of cargoes into the US have circulated although there is little substantive – at present. The Brazilian crop is progressing its harvest pace, and forecasters vary in their crop size estimates. Cordonnier’s latest number is 86 million mt, Agroconsult are at 89.2 million mt marginally down month on month from 90.8 million mt and International F C Stone are at 87.5 million mt, 3% lower than their last estimate. Correctly, CONAB have pointed out that even the lowest estimate is above last season’s 81.5 million mt harvest.

• Today saw Egypt’s GASC purchase a further 175,000 mt of wheat at something like $20/mt over their last purchase price. The latest tender was for mid-April shipment, and tenders were awarded to the US (55,000 mt), Romania and Russia (60,000 mt each). It appears the cheapest French offer was some $10/mt too expensive to compete! Ukraine uncertainty was clearly a factor in pricing, and the US offer (which was booked) looked to be extremely cheap, particularly when compared with other offers.

• Egypt aside, there was little to inspire a thin marketplace, Russian annexation of Crimea appears to be going ahead as the world watches what might, or might not, happen in eastern Ukraine.

• Further selling, by China, to US, of soybean cargoes sourced from S America appears to be happening, although this is not weighing on prices – yet. Today’s price rally has inspired further farm selling by Brazilian and Argentine farmers, which may have limited gains somewhat.

• We have commented privately on the size of current fund positions, which are large, and the potential which this has to move markets, particularly ahead of the stocks report scheduled for release at the end of the month. Risk level remains high!