• We have had another week of “in at one end, and out at the other” with corn imports hitting 420,000 mt for the week (12 million mt year to date!) and weekly wheat export licences totalling 495,314 mt. The year to date total has now reached 26.573 million mt, which is 7.931 million mt (42.5%) ahead of last year. The weekly run rate required to reach the USDA’s 29 million mt is reduced once again, this time to 269,639 mt/week for the next nine weeks.

• Trade in Paris has followed the rain in Europe rather than Plains dryness, and it feels as if old crop cash premiums are strongly hinting of some significant tonnages still to come out. There are more reports of 2012 stocks remaining on farm and the pace of corn imports continues to displace wheat in feed rations, which exacerbates the situation. Clearly EU SnD’s are wrong right now!

• Ukraine unrest, which shows little sign of abating, is having no visible impact on either old or new crop Black Sea markets. Buyers are scarce and toughing out the inverse as long as they can (or dare) in the face of what continues to look like bearish new crop SnD’s. MATIF markets are closed tomorrow as is the Black Sea market, and holidays will ensure quiet trade in the next ten days.

• Away from Europe, there is much talk of China requiring and US corn or products that enter the country be certified free from MIR 162, the non-approved GM event. This new step strongly suggests that Chines approval of MIR 162 is far from imminent, and perhaps more importantly, it may seriously impact DDG imports from the US. To date there appear to be no US parties willing to offer MIR 162 free certification. This appears, yet again, to be another step by China to slow or stop corn and product imports in the face of large domestic corn stocks, the country is reportedly awash with the stuff and prices are beginning to slide – fast.

• Weather in the US is forecast warmer with showers moving back into the Plains and W Midwest late next week. The warming trend will allow farmers back into the fields and planting should push on rapidly in what looks set be be an extremely active week. The good news lies just around the corner with all key forecasts suggesting a significant warm up which will firm soils and increase evaporation levels, which is currently needed.

• Today has been noteworthy by a lack of real news input. Slow planting in the US, market participants attending the bourse in Hamburg and forthcoming holidays in Europe combine to create an uninspiring market.

• In the US a crop tour of the Plains is reporting lower yields although this week’s crop condition report showed a 1% week on week decline in winter wheat crops rated good/excellent (to 33%) and a corresponding week on week increase of 1% in crops rated poor/very poor (to 34%). These compare with last year’s 33% (unchanged) and 35% respectively.

• Corn planting reached 19% vs. 6% last week, behind expectations but better than last year’s 5% and behind the five year average of 28%. Soybean planting, which has just started, has reached 3%.

• Good evening, and welcome to our mad world! Markets in the US opened sharply higher as we approach May option expiry but eased back from early highs as the session progressed. Consumer price fixing was the key to early gains and once sated left more sellers than buyers.

• The main pointers today have included concern over delays in US corn planting with the 14 May cutoff (which is the traditional date regardless of conditions) still close to three weeks away. Whilst wet conditions have not been the main issue, it is the promise of continued cold that has driven the delay. We are not (yet) disturbed by “delays” as we know the US farmer can really cover the acres when conditions are right – as we have mentioned previously.

• Looking at other corn market influencers, high on-going consumption, particularly export sales, with nearly 20 weeks to go as some 97% of USDA season total exports are now committed looks to be a big issue. More sales will equate to reduced end stocks. However, 38% of sales commitments are still not shipped and could well be subject to cancellation or rolling forward to next season – thereby reducing current season commitment and adding back to end stock.

• The Ukraine has not really featured in today’s news, additional sanctions against a wider group of Russian officials has been announced by the US and EU, we feel certain that the Russians will be desperately upset at their summer holiday plans being disrupted and will doubtless moderate their political aspirations accordingly – NOT!

• Aside from Ukraine politics, planting of spring grains, excluding corn, stand at more than 2.6 million ha, In additrion, 2.07 million ha of corn are sown, which is around 40% of planned acres as well as over 2.6 million ha of sunflower (over 60% of plan). Recent rains have improved conditions for newly sown crops according to Agritel. In Russia, spring grain planting had reached 15~% of planned area with some 4.8 million ha sown by last Friday. The overall Russian 2014/15 grain harvest has been projected by Rusagrotrans in the range of 92 to 96.2 million mt, which compares with the AgMin figure of 96 to 97 million mt. Plantings in Belarus and Kazakhstan are also reported to be progressing well.

• Weather conditions for the coming fortnight across most of Europe are wetter than normal, which will benefit crops that have seen some dryer than normal conditions in the last month or so.

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Weekly Update 25 April 2014

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Fund positions

• Today has been notable for the activities taking place in Ukraine and on its borders. Ukrainian forces removed pro-Russian protestors from public buildings in Eastern regions and Mr Putin has escalated troop activities on the borders stating that Kiev has been acting illegally in their actions. President Obama has warned that the US will “ramp up” sanctions on Russia if it violates the Geneva agreement to which is must comply within “days, not weeks”. In addition, the US has stepped up military “exercises” in the Baltic. Regardless of the rights or wrongs of the situation it has added to the nervous tone in the market and risk premium has been added to wheat prices throughout today.

• We are aware that grain exports have continued as normal and without disruption, although we at the end of the season and volumes are slowing between now and harvest, potentially allowing tensions to ease – or grow for that matter!

• We have seen an easing in the spread between front month soybeans, and meal, and new crop positions. The July/November soybean premium rose to a record high (for April) heading into Easter, and the recent drop has hit chart support, which, if broken will pave the way for further spread weakness that will likely spill over into overall contract weakness (as opposed to weakness in the spread). This could also well signify the “season top” has been seen – time, as always, will tell.

• Corn markets have added some price premium on account of weather delayed seeding with conditions being both wet and cool. That said, the “normal” risks associated with delayed planting of corn come from summer heat and drought impacting pollination and overall crop development. However, this season is looking as if it could display El Niño tendencies which will reduce the risk somewhat as cooler and wetter conditions are more likely to prevail.

• StatsCan today released their farm survey results which suggest a reduction in 2014 canola (rapeseed) acres to 19.8 million acres, down slightly from last year and also some 1.2 million acres from trade expectations. Wheat acres at 24.8 million were sown 1.2 million from a year ago but above expectations. Perhaps more important was the jump in soybean acres to a new record, 5.3 million, a huge 800,000 above last year. Oats, another key Canadian crop was forecast to increase close to 500,000 acres from last year to 2.86 million.

• US weekly exports were reported as follows:

Wheat: 610,800 mt, which is within estimates of 450,000-900,000 mt.
Corn: 1,001,800 mt, which is within estimates of 65,,000-1,050,000 mt.
Soybeans: 119,000 Kmt, which is below estimates of 150,000-650,000 mt.
Soybean meal: 176,800 mt, which is within estimates of 75,000-225,000 mt.
Soybean oil: 5,.700 mt, which is within estimates of 0-35,000 mt.

• At home, Brussels granted another large weekly tranche of wheat export licences with 407,975 mt. This brings the season to 26.077 million mt which is 7.775 million mt (42.4%) ahead of last season. To hit the USDA’s estimated 29 million mt total requires an average weekly export figure of 292,255 mt over the next ten weeks. To put this into perspective, we have only had two weeks all season that have been below this level, and these were the opening two weeks of the year. At this moment it doesn’t look a daunting task!

• Corn imports into the EI for the week were 190,000 mt bringing the season total to 11.5 million mt.

• Finally, two incidents could well become a drag on global animal feed consumption in coming weeks and months were reported by Reuters today. Bird flu has been discovered on a Californian poultry farm which produces quail and duck. Russia has announced a ban on imports of poultry products from the state. The second issue, potentially more significant, is the (as yet unconfirmed) report of BSE in Brazil. Routine inspections in a slaughterhouse have found a suspect animal and samples are currently being tested. The country remains its “insignificant risk” status according to the  World Health Organisation but Egypt, China and S Korea have banned imports from Brazil, which is the world’s top exporter.

• Today has seen markets somewhat mixed, but as we approach the close in Chicago front month soybeans (May ’14) is close to session lows with close to another 1% decline and nearby soybean meal is also showing losses. The grains are higher, rebounding from yesterday gaining on wet weather delaying planting and not enough in the western Plains – when will they make up their minds?

• Corn planting is reported to be active across key regions, and we know how they can cover the acres when conditions are right. Some key central Illinois counties are reported to be as much as 50% planted. We could well see a surprise in next week’s seeding report, some suggesting as much as 20% of the corn acres could be in the ground.

• The trade is “counting” cargoes to see whether imports of soybeans and meal are sufficient to offset the US tightness. Two Brazilian soybean boats have arrived and another six are known to be en route, a minimum 240,000 mt of soybean meal has been sold into the US. The discounted (and heavily so) Chinese offers by panicked crushers who are unable to open letters of credit would suggest further sizeable tonnages of soybeans will be available at cheap price levels (relatively speaking) not to mention soybean meal, all of which suggests that the worst of the tightness may well be behind us. The front month Chicago pricing relative to deferred months today also suggests that this may be the case.

• Western Europe is looking pretty good,weather wise, with the exception of the Iberian peninsula and the Black Sea regions could use additional rain right now. Fortunately, for now, the forecasts include precipitation for much of the area with the exception of Ukraine.

• Argentina’s Rosario Grain Exchange forecast the 2013/14 soybean crop at 54.9 million mt, an increase from their 54.7 million mt last forecast.Recent concerns over yield following heavy rains in early April, and some flooding, are being eased by better than predicted yields in Cordoba. The 2013/14 corn harvest was also increased at 23 million mt, an increase from last month’s figure of 22.7 million mt.

• As expected we have seen EU wheat values down today on the back of yesterday’s Chicago decline, and despite continued falls in soybean and meal values in Chicago the grains have found some degree of support – or “turnaround” in Tuesday trade. The grains found support in concerns over seeding delays caused by wet conditions even though these will assist wheat crops.

• Technically, we have a weak soybean chart with today’s close below yesterday’s low, no doubt many will be watching for follow through and further weakness. The rumour mill is churning and there are suggestions that China is about to recommence weekly soybean reserve auctions, starting with 3 million mt on 6 May (a month earlier than previously – presumably due to the nearby premiums) although many doubt the success given China’s current stock situation. Regardless, the news is not bullish.

• Widespread chatter over Chinese clampdown on those who use commodity imports for finance is growing. It appears that China is trying to slow, or halt, the use of import finance schemes that are financing property development by increasing up front requirement for letters of credit. This has translated into the recent difficulties we reported in the last ten days where importers were unable to open LC’s despite vessel arrivals, and has resulted in some defaults as well as further renegotiation on contracts. It has also been alleged that some I porter representatives have been “detained” for questioning over such commodity finance deals.

• The above is unlikely to provide a bullish import to soybean prices for now!

• Aside from China, we have today seen further cargoes of Brazilian soybeans and Argentine meal sold to the US for June / July. Prices now pencil into the US as a consequence of weakening cash basis following washouts, letter of credit difficulties and / or defaults. All in all, this is providing a point of relief to hard pressed US stocks and limiting price upside pressure.

• US weekly crop progress and conditions reporting is now in full swing, and the latest report shows winter wheat at 34% good/excellent, the same as last week and 1% behind last year’s 35%. Corresponding poor/very poor rating is 33%, an increase from 32% last week and unchanged year on year. As far as the winter wheat crop development is concerned, it was reported as 9% headed, an increase from 5% last week, and up from 7% last year but behind the five year average of 17%. Spring wheat crops are reported to be 10% planted, compared with 6% last week and 7% a year ago but behind the five year average of 19%. More importantly, from a headline grabbing perspective, corn is 6% planted, compared with 3% last week and 4% a year ago but behind the five year average of 14%. It must be borne in mind that the ability of the US farmer to plant corn has grown hugely, as evidenced last year – watch this space when the planting window really opens.

• The Australian government weather forecasters continue to push stronger on the growing probability of an El Niño weather pattern with July now being suggested as a likely commencement date. Six of the seven models used suggest a likely event. Dry Asia and wetter S America is a headline outlook, although the effects do extend into the US and it is suggested that cooler and more moist conditions offer trend or above trend output of row crops including corn and soybeans. Palm production in Indonesia is likely to be compromised if El Niño conditions prevail, potentially limiting oil availability and increasing soybean oil demand whilst increasing soybean meal availability (and thereby potentially pressuring prices).

• All in all, we have some interesting developments which are worth keeping an eye on.

• European markets remain closed today, but CBOT has seen a return to work with sharply lower prices. It remains to be seen whether this continues in coming days.

• Without distractions from day to day markets and information, we have reflected on what may, or may not, be going on in our agri markets, and the distillation of thoughts (in no particular order) follows:

• Corn – there is a strong probability that the weather in the US mid-west will favour corn production as cool summer and normal moisture will result from the likely El Niño pattern. Prices above $5.00/bu look difficult to sustain. Today’s prices would suggest that 92 million acres of corn will be planted, weather permitting, and demand has eased from the times when $4.00/bu saw demand growth. It must be borne in mind that China, US and Brazil own most of the world’s corn. End stocks look like China – 72.2 million mt, US – 33.8 million mt and Brazil 11.9 million mt. The Brazilian crop is done and stored, China continues (for some reason) to stockpile and it is now all about US acres and growing conditions. Unless we see a weather disaster in the US, the clever money will be on $4.00/bu corn by the end of the summer.

• Soybeans – the outlook is similar to corn insofar as weather patterns suggest favourable conditions for the crop right now. Coupled with large growth in planted acres we look for increased stocks and a move away from the tight US stocks position which has driven recent price action. Both Brazil and Argentina have record output and we are right at the point where these stocks will hit the market (May/June) easing worries over tight US stocks. Key is the level of end stocks, Argentina – 29.6 million mt, Brazil – 19.0 million mt, China 13.7 million mt and US 3.6 million mt. These four own all the world’s soybeans! Argentina’s stock leaps off the page as a vast number as they have kept tonnes from the market in a game of “chicken”, possibly driven by currency, economic and/or financial meltdown. When, and we do not say “if”, these stocks hit the world the current tightness (which has been bullish) will move to become significantly bearish. The single most bearish issue right now is the Argentine stockpile, sooner or later they will have to sell in order to raise cash.

• Added to the soybean scenario we have to consider the bumper Canadian canola (rapeseed) crop. There is a huge surplus exacerbated by their logistical difficulties caused by the cold winter conditions. Springtime and the inevitable thaw will permit these stocks to compete with soybeans (and meal) where substitution, and competition, will impact prices. The likelihood of $10.00/bu soybeans (or lower) unless we see severe weather issues within the US or Argentine hoarding of stocks seems the most realistic outcome right now.

• Wheat – right now we have a potentially critical situation, Ukraine. Some suggest that the “smart” money is betting on a cooling of the geopolitical situation and a withdrawal of the price premium which it has attracted in recent weeks. Historically, price rallies on geopolitical issues have proved good selling opportunities. Those who purchased crude oil on Middle Eastern spats or cocoa on Ivory Coast civil wars (of which there have been many) have generally lost money! The outlook for US wheat weather suggests improvement (right now) and potentially game changing and drought busting rains into May for winter wheat growing regions. If this is to materialise we could well be staring at significant downward price moves. Failure of rain to arrive could create the opposite effect and sharp price escalation. However, the odds right now suggest good rains and price correction to the downside.

• A further factor to keep in mind is the potential El Niño, which if it materialises, would negatively impact India’s production. The last significant El Niño saw India move away from its position as a major exporter to one of a major importer, mushing global prices higher. The swing from Indian exports of 5.6 million mt to importing 7.0 million mt saw close to 13 million mt removed from global supplies. That said, it is far too early to predict the Indian monsoon season right now. Bottom line, a price correction looks likely given rain chances in the US and likely easing of Ukraine tensions.

• Today’s CBOT price action has elevated an eyebrow or two! Soybeans and products have traded higher whilst the grains (corn and wheat) have settled lower with wheat declining more than 2%. MATIF may have taken a lead from Chicago, having ramped up swiftly yesterday, but London (which didn’t echo MATIF’s performance) was unchanged to a touch higher on the close. Last night’s MATIF/London differentIals have, as a consequence, narrowed.

• Interestingly we have seen a number of commentators remarking upon the Ukraine situation as a difficult one but few, if any, know how to trade it, particularly ahead of the long Easter weekend.

• Brazilian soybean FOB basis continues to fall away and added to weaker freight offers import profit opportunities into the US. Added to this there are unconfirmed rumours that up to ten further Brazilian soybean cargoes have been washed out by China.

• Given the former statement, it is an interesting dichotomy that the world is awash with soybeans and the US’s biggest customer (and the world’s biggest for that matter) is struggling to open letters of credit due to banking tightness and tight (negative) crush margins as well as major oversupply right now. Under such circumstances it is difficult to suggest anything other than a bearish longer term outlook.

• Brussels has kept up (and exceeded) the pace required to hit a season total of 29 million mt of wheat exports by granting weekly licences amounting to 455,195 mt. The season total now stands at 25.669 million mt, which is 7,655 million mt (42.5%) ahead of last year and requires a weekly figure of 302,775 mt for the remaining 11 weeks to hit the USDA’s 29 million mt target.

• In the same vein, we have seen weekly corn imports reach almost ½ million mt bringing the season to 11.3 million mt – a massive 2 million mt ahead of last year. Going forward, there are concerns over Ukraine despite the crop being broadly planted, the requirement for inputs through the growing season and harvest may well become an issue – at some time – unless we see a resolution to today’s current political situation. This could, if it all goes wrong for Ukraine, provide an opportunity for Brazil and possibly Argentina in coming months.

• Despite the latest MARS report suggesting EU wheat crops are well developed and advanced on account of recent benign weather (or even beneficial warmth and sunshine) rain is doubtless required before long. In Germany, farm co-ops are forecasting their 2014 crop at 24.74 million mt, a marginal month on month increase but down 1% year on year. By way of contrast, the German trade house Toepfer sees their crop at 23.95 million mt.

• Even in the face of unrest, the Ukraine AgMin reported 1 April grain stocks at 12.3 million mt, up 14% year on year to include 4.5 million mt of wheat and 5.9 million mt of corn. Grain exports for 2013/14 so far have reached 28.6 million mt, and are (according to AgMin) expected to reach 33 million mt, a year on year increase of 10 million mt, not a bad effort given the political issue – which appears to be not impacting trade flows, so far.

• Finally, according to Stratégie Grains Vireol has placed on hold its plans to develop its Grimsby based bioethanol plant, suggesting that US investment looks more attractive given political uncertainty over biofuel in Europe. They added that 2nd generation bioethanol production in Grimsby was still an objective.

• We have seen a huge anomaly in the market today with what can only be described as a “knee jerk” reaction to the Ukraine situation, more so in MATIF wheat than in London (see the jump in Paris premium over London on a Stg adjusted basis). In France, Germany and Black Sea regions farmers are “finding” yet more wheat to sell, and the Ukraine crisis is forcing “shorts” out of the market before the long Easter weekend. There would appear to be plenty of old crop wheat, yet if Ukraine implodes over the long weekend material will be scarce as next week begins. Hence todays leap in prices. Maybe, just maybe, if Ukraine remains on a level playing field over the weekend we will see the market give back its recent gains.

• If weather is normal, whatever that is, both EU and Black Sea region crops will be big, and added to what might yet become understated old crops given what is still around and available for sale. Yet today we see elevated prices on the back of the political situation. Something has to give – and before long.

• In unrelated agri news, the US’s NASS reported 3% of the projected corn crop was planted as of mid-April, a full 1% ahead of last year, yet 3% behind the five year average. Despite yesterday’s concerns over cold weather and damage to wheat, it was reported that overnight low temperatures were insufficiently low to hit the threshold to cause damage in jointing or late tillering wheat crops. The central US forecast looks more favourable for late April and early May as far as planting is concerned. In addition, beneficial forecasts are in place for further precipitation across the dry western Plains later this week. Corn seeding should move ahead rapidly – remember the massive pace of planting last year in a short window of opportunity!

• US winter wheat condition was reported at 34% good/excellent, behind last week’s 35% and 36% last year.The proportion of the crop rated poor now stands at 32% compared with 29% last week and 31% last year. Spring wheat planting stands at 6% compared with 5% last year.

• It would appear the question on many lips tonight is, “Should we trade improved weather, or should we trade rising Ukrainian tensions?” Our leaning, right now is towards trading the weather, although we have been accused of sounding like a cracked record more than once in recent weeks!