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

Weekly Update 30 May 2014

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

Fund positions

• CBOT grains trading lower towards the close and soybeans/meal hardly setting the world alight with small gains. There seems little fundamental news to support soy but seemingly, the funds are still hanging in there with some buying today. Paris wheat levels are following CBOT and look vulnerable to further setbacks, possibly as much as €10.00/mt which would impact London futures as well as domestic physical prices. With harvest due to start early this year, possibly late June in southern Europe, we could well be approaching a point at which a “cheeky” bid might seem interesting to a keen seller.

• News from the US suggests that soybean and corn crops are looking “exceptional” following strong germination. Monday’s crop report is expected to show corn condition to be up amongst the best in many tears. If the forecast rains in early June actually materialise we could well see ratings improve still further, and the risk of heat and dryness looks remote right now, although there is time for change, despite the strong chance of El Niño conditions which would minimise this risks.

• The IGC’s latest grain monthly market report has trimmed 2014/15 global wheat production by 3 million mt, but increased corn by 5 million mt and soybeans by 2 million mt (all changes are month on month). Their total grains end stocks figure was increased by 8 million mt from a month ago. The 2013/14 forecasts showed an upbeat total grain output of 1.977 billion mt, up from the prior year’s 1.790 billion mt; of this wheat for 2013/14 was 709 million mt vs. 655 million mt in 2012/13. Corn for 2013/14 was 970 million mt vs. 655 million mt in 2012/13 and soybeans 272 million mt in 2013/14 vs. 241 million mt in 2012/13. Our point, which we have repeatedly mentioned, on global stock rebuilds is supported by these forecast numbers.

• CBOT markets have displayed some degree of “turnaround” following yesterday’s decline but there has not been any significant retracement suggesting that the bears are maintaining the upper hand in the battle for market direction.

• Yesterday’s crop condition and progress report showed corn to be 88% planted, as was the expectation, an improvement on the previous week’s 73% and in line with five year average. The crop is 60% emerged, a touch behind the five year average of 64%. Soybeans were reported to be 59% planted, better than anticipated, an increase from 33% week on week and above the five year average of 56%. The crop is 25% emerged, just behind the five year average of 27%.

• Winter wheat condition was reported as 30% good/excellent, a slight improvement (1%) on last week. The crop was also reported to be 44% poor/very poor compared with 42%  last year. Spring wheat planting has progressed to 74% complete, up from 49% last week and compares with the five year average of 82%

• Interestingly, the correlation between crop development and yield is not as close as some might have us believe. The 2013 crop was slow to develop yet average yield finished above trend. In 2009 emergence of the crop was about the slowest in the decade but average yield hit a record high of 164.7 bu/acre. Conversely, 2012’s fastest planting on record led to severely depressed yield of 123.4 bu/acre, the lowest in 17 years. 2004’s early planting saw the second highest yield on record. What can we deduce from this, far from intuitive, information? Seemingly planting dates and early crop development are less important than pollination conditions, temperature and rainfall, which leads directly to the number and size of kernels on the ear.

• Midwest and southern farmers planted 25% of their soybean crop last week, boosting the national figure to 59%, impressive indeed, especially considering they were also finishing corn planting at the same time. As well as cotton and rice further south. The improved weather conditions, namely warmth and sunshine, saw close to ideal conditions that encouraged progress. Weather forecasts into early June look to be close to ideal with normal rains and temperatures; significantly, there are no reported threats from extreme heat or dryness into mid-June.

• EU and Black Sea conditions are, as we have reported, close to ideal and at this time we are looking to a record (or close to a record) wheat crop in the EU as well as a sizeable Black Sea crop. Exporters in the region are actively looking for business for early new crop sales (July and August) to open the traditionally aggressive August/October sales window. Prices have been in decline as sellers look to attract business, and we have seen reports that Algeria secured 700,000 mt of French wheat at $248.00/mt FOB, an extremely aggressive level which appears to be well below current replacement levels. Interestingly, the price is also below Black Sea levels, historically rare in a non FSU drought year. Supply pressures from within the EU look to be coming to the fore!

• Ukraine corn is becoming somewhat more aggressive in its pricing; since the political crisis which arose in March a price premium which made their corn uncompetitive has existed, and this now appears to be unwinding. However, buyers remain wary keeping “political risk” as an excuse to sideline – for now. The potential for Ukraine sellers to drop prices still further to attract business should not be ignored, and a window of opportunity may well be forthcoming.

• Egypt’s GASC is opening the negotiation doors as far as wheat quality standards are concerned, specifically citing moisture levels, which precluded French and other EU origins from competing since January when the moisture content of their imported wheat was fixed at 13%.

• Brussels has this week granted another big week of wheat export licences with 556,741 mt, which brings the season total to 27.991 million mt. This is 8.249 million mt (41.8%) ahead of last year with five weeks of the season left to go. Weekly corn imports were also high at 254,000mt, with a season total of 13.302 million mt, which compares with 9.988 million mt last season.

• As we make a start to the holiday shortened week we look back to the weekend news of a move to far right politIcs across much of Europe and the election of a new President in Ukraine. The former has made the media headlines but had no impact upon markets whilst the latter has resulted in a view that progress is being made and that “risk premium” could well erode in coming days and weeks. We live in the sincere hope that this becomes the case.

• Chicago markets have traded lower today as has London wheat, both having been closed on Monday. Paris wheat initially traded lower before closing around the unchanged mark for some reason we are yet to understand.

• In general terms, Central US and world weather conditions are seen as favourable for crop development, the EU has been described as near perfect and the forecast for Central and Volga regions of Russia, which are in need of rain, contains even more than was the case yesterday.

• There is continuing talk of LC (letter of credit) issues impacting Brazilian soybean exporters, and this news added to pressure on values.

• Interestingly, we are advised that selling volume in Chicago has been moderate, possibly “black box” originated and the surprise is that the funds are retaining their longs. One possible explanation is that they are looking for a “Turnaround Tuesday” as an opportunity to reduce length or even take on short positions as the fundamentals begin to look more compelling as we move closer to new crop harvests in the northern hemisphere.

• There is further evidence the the projected El Niño phenomenon is developing more rapidly, so much so that NOAA (National Oceanic and Atmospheric Administration) is expected to formally announce its arrival within a couple of weeks. The correlation between El Niño and trend or above trend corn and soybean yields in the US is well documented.

• From a technical chart perspective we would look at a close below $12.50/bu basis Nov ’14 soybeans to confirm a bearish outlook and that we have seen the season highs. At the time of writing the contract is trading $12.40/bu.

• Finally, wheat crops in Europe received upbeat reports in recent days, France’s AgriMer reported their soft wheat crop  to be 75% good/excellent, an improvement of 2% week on week. In Germany, trade house Toepfer forecast their 2014 wheat crop at 24.77 million mt, an increase from their previous estimate of 23.95 million mt a month ago.

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

Weekly Update 23 May 2014

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

Fund positions

• CBOT wheat has seen lower levels today as have both London and Paris, the trigger being support levels giving way basis the July ’14 contract, favourable world weather and what looks like an overabundance of supply. Corn has not followed suit, trading marginally in positive territory as we write this. Seemingly there is a dilemma between the upside pull from soybeans and the downside pull from wheat leaving traders to decide which is the stronger force on corn prices. Soybeans and products remain higher on US tightness and on talk of fresh Chinese demand for both soybeans and soybean meal. There has been something of a “get me out” mentality behind some of today’s trade according to reports we have received.

• New crop soybean/corn spreads have widened (again) to 2.7 to 1. The soybean price rally has allowed the July ’14 contract to fill a technical chart gap left last July! This has long been an upside target for the bulls, and now filled may leave them satisfied – for now.

• The US today released its weekly export figures as follows:

Wheat; 352,000 mt which is within estimates of 200,000-550,000 mt.
Corn; 570,300 mt which is within estimates of 375,000-725,000 mt.
Soybeans; 615,500 mt which is within estimates of 350,000-800,000 mt. The old crop element was 164,400 mt which is above estimates of minus 150,000-150,000 mt.
Soybean meal; 350,400 mt which is above estimates of 75,000-350,000 mt.
Soybean oil; 41,300 mt which is above estimates of zero to 30,000 mt.

• Weekly EU wheat export certificates amounting to 283,459 were granted this week. This brings the season total to 27.434 million mt, which is 7.984 million mt (41%) ahead of last year. At the same time EU weekly corn imports amounted to 342,000 mt which brings the season to date to over 13 million mt. Clearly the corn imports are displacing wheat in feed rations allowing wheat to be made available for export.

• In a slow day we saw soybean futures push sharply higher as the July ’14 contract found support near last week’s lows. There still appears to be a fine line between the “enough/not enough old crop supply in the US” debate and this is creating ongoing volatility. Historically high cash basis for soybean meal also adds to soybean price support. Fund buying in soybeans and products was also evident, and relatively strong. The volume of S American supplies heading to the US will doubtless place a top in prices, the question being “when”, key at that time will be the formation of an “exhaustion top” and a likely sharp collapse in prices.

• Corn traded in a narrow range with decline limited by the strong soy market as well as stronger weekly ethanol production data. Favourable EU/Black Sea weather conditions left the bulls little to get hold of and the market feels as if it wants to retreat to lower levels. Rain across Nebraska, Oklahoma and Texas will replenish soil moisture levels and planting is likely to accelerate across the northern Plains regions into next week. Thereafter forecasts call for normal precipitation for the next two weeks and warmer conditions will lift the crop condition rapidly. The S American corn harvest will limit US export sales as their pricing represents a healthy discount to the US Gulf and we would expect to see lower price levels and further fund liquidation (which should hasten the process) unless a significant weather event arises.

• Wheat markets across the world are battling with good and improving weather forecasts. The heat across the central and Volga regions of Russia looks to be coming to an end with welcome rain in the forecast. Import demand has surfaced with cheaper Black Sea sellers winning against US offers. Chicago prices held onto technical support, should this be breached the only way for prices looks to be lower, unless (as with corn) we see a significant adverse weather issue.

• Finally, a Reuters survey suggested that the 2014 EU soft wheat crop would reach 137.5 million mt, which is an increase on last season’s 134.3 million mt, and the highest in six years.

• A few more weeks away might be just what this market needs given the change which we have seen over the last fortnight.  The headlines are scant on bullish, crisis fuelled, news from Ukraine although it would be fair to say the issue is not yet over. It appears that the fast approaching new crops, which seem to be going through “ok” sowing, germination and development and look to be facing “ok” weather conditions, appear to be a less attractive long to the spec community than the tight old crop. Hence, the eventual liquidation of old crop longs looks unlikely to be replaced with new crop longs, indeed we could well be staring at new crop shorts if our market whispers are proved correct.

• US weekly crop condition reports, released yesterday, showed corn to be 73% planted, 1% behind expectations but ahead of last week’s 59% and last year’s 65% but behind the five year average of 76%. Reports from the ground suggest that the crop is going into excellent seedbeds and conditions for germination and early development look encouraging. Soybeans are 33% planted, 2% behind expectation but up from lats week’s 20% and 21% last year but behind the five year average of 38%.

• Tuesday’s CBOT prices, into the close, look to be lower pretty much across the board as fresh selling and commercial hedging pressured levels. We are looking at trades taking both technical support and resistance levels as well as moving averages into account in some choppy trade.

• China has reportedly sold as much as 81% of its weekly soybean auction stocks which brings the cumulative total to nearly half a million mt over the last fortnight. Forward purchasing by crushers in China has been more active as margins appear to be somewhat more favourable than in nearby positions.

• Russia’s SovEcon has reported their latest 2014 grain crop expectations at 90 million mt, of which wheat would account for 50 million mt, a 2 million mt improvement month on month. This figure, if realised, would be a reduction from 92.4 million mt year on year, what was 52.1 million mt last year.

• In “catch up” mode:-

• Informa’s latest US acreage estimates showed soybeans 900,000 acres up at 82.1 million, which is 600,000 ahead of the latest USDA number.
• EU wheat export certificates last week reached a total of 27.15 million mt, 7.974 million mt (41.6%) ahead of last year.
• Argentina’s RGE (Rosario Grain Exchange) increased their soybean output estimate to 55.7 million mt, an 800,000 mt increase, which places them close to the BAGE figure and 1.7 million mt ahead of the USDA’s latest number. Their estimated corn output was also raised to 23.9 million mt.

• Overall, we continue to see little in the way of significant threat to northern hemisphere crops and remain of the opinion that pressure will continue to influence prices lower.

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

Weekly Update 2 May 2014

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

Fund positions

• The markets have seen price boards closing in a sea of red as prices don’t just drop, they fall out of bed. Soybeans close near the session lows losing close to 4%, meal sheds 3.3%, corn over 2% and wheat just under 2%. European markets are closed for holidays which left London somewhat isolated but closing levels were lower although not to the same extent as seen in the US.

• Why the change, we hear you ask? Old crop soybeans have led the way lower with new crop beans, corn and wheat the followers. Funds would appear to have been sizeable net sellers and the corn and soybean charts, from a technical perspective, are looking somewhat more negaive.

• We have suggested in recent weeks that the markets are carrying additional risk premium on account of the Ukraine situation as well as the “planting delays” in corn. It could well be that the market is making some adjustment for this and today’s price action is reflecting this. One respected market commentator has placed the premium in Dec ’14 corn to be more than $1.00/bu and Nov ’14 soybeans at least $2.50/bu. The price realignment potential, should these numbers be correct is clearly significant and the impact of such a move should not be ignored.

• Interestingly, we would normally expect to see additional fund interest at the start of a new month, but on this occasion (and it is early days yet) we have seen the opposite with an outward fund flow to start May.

• US weekly export sales data was released as follows:

Wheat: 434,400 mt which is within estimates of 400,000-800,000 mt.
Corn: 951,800 mt which is within estimates of 650,000-1,175,000 mt.
Soybeans: 62,500 mt which is within estimates of 0-550,000 mt.
Soybean meal: 140,900 mt which is within estimates of 50,000-265,000 mt.
Soybean oil: 500 mt which is within estimates of 0-60,000 mt.

• Today has seen a further Brazilian soybean cargo added to the US lineup bringing this week’s total to six. Others are scheduled to be nominated in coming days and the total is expected to reach as many as 12 cargoes by the end of next week. This sort of volume will total around 25 million bu which will be added to the 20 million bu already imported as well as soybeans sourced from Canada. There is a strong suggestion that soybean imports into the US will reach a record 75 to 85 million bu as well as some 500,000-600,000 my of soybean meal.

• Finally we have just picked up on a report that Egypt’s GASC is tendering for early June shipment wheat, no doubt the timing is has been triggered by today’s price decline. Whether EU wheat gets a look in or not is debateable, our thoughts are that with unchanged specs it will be unlikely. Tender offers and the outcome will make interesting viewing.