• Midday comments:

• Wheat markets remain critically oversold and the large fund net short position in Chicago leaves a short-covering risk which needs to be kept in mind. Volume trade is low, as has been the case pretty much all week so far, most activity appears to be in spreads rather than outright wheat trade. There appear few, if any, issues in the southern hemisphere and the S American and Australian milling quality crops should be available to the market before too long. Meanwhile European and Black Sea wheat export prices look to be aggressive and the dominant factor driving global prices and trade – in a bearish direction.

• Corn markets still see a slow start to harvest and potentially reduced acres as an area which may support prices in the short term, and trade remains quiet. Rallies are subdued although margins in the sector are healthy, ethanol production for week ending 12 September reached a five week high. The ongoing US/China dispute over GMO issues was the subject matter for their discussions but seemingly no agreement or common ground could be found. The likelihood of cargo rejection remains high and interest from other nations is now becoming more important to US producers and exporters.

• Soybean markets have seen some consolidation in recent sessions, increased harvest activity is needed in order for the downward trend to resume. Cash basis and spreads are weakening as volume harvest approaches, soybean oil, the current leader of the complex, remains the best performer whilst meal struggles to find much in the way of bullish following. Consequently it feels as if the bears remain in the controlling position in this market right now.

• Evening update:

• US weekly export data was released as follows:-

Wheat; 314,500 mt which is below estimates of 450,000-650,000 mt.
Corn; 659,700 mt which is within estimates of 550,000-750,000 mt.
Soybeans; 1,468,500 mt which is above estimates of 1,100,000-1,400,000 mt.
Soybean meal; 199,700 mt which is within estimates of 100,000-275,000 mt.
Soybean oil; 28,600 mt which is within estimates of minus 5,000-30,000 mt.

• On the subject of exports, Brussels granted weekly export licences amounting to 543,253 mt, which brings the season total to 6.109 million mt. This is 1.8% ahead of the same time last season. The main question that should be asked is, “Can this export pace continue?” The main issue is one of quality rather than quantity! Russia is expected to be both competitive and aggressive, particularly in the wake of their failure to succeed in this week’s Egyptian tender. Their July to Sep shipments are expected to top 11 million mt, which begs the other question, “How long can this demand pace continue?” Matif wheat (basis Nov ’14) hit another contract low and incidentally the lowest front month contract price in four years. Corn import licences of 100,000 mt in the week bring the season total to 2.2 million mt.

• CBOT grains and soybeans all closed in the red with both wheat and soybean meal making new lows once again and Nov ’14 beans are heading towards their post-September crop report low. The weekly export data left little for the market to hang onto and favourable US weather forecasts and a lack of export interest in the grains leaves little for the market to grab hold of for support. Fund sellers have emerged across the soybean complex as well as the grains throughout the day.

• In the absence of significant news, it is interesting to note that interior cash basis levels are eroding fast with levels dropping as much as $4.00/bu in three days (basis spot delivery), the approach of new crop supplies is definitely having an impact.

• Finally, it is reported that helpful, soaking rains are due across W Australia over the weekend and early part of next week, totals of ½” to 2” are forecast. Dryness will be a feature elsewhere but the forecast rains will help to stabilise the Australian crop in the order of 23-24 million mt.

• Midday comments:

• Wheat markets showed a potential for recovery with triggers coming from increased activity in global markets as well as the current extremely oversold market condition. These triggers helped to pick the market up from new contract lows made Tuesday. The wheat/corn spread has also been active with world wheat attempting to stay competitive in the oversupplied global feed grains marketplace. SE Asia has stepped in and “dipped a toe in the water” and it feels as if the market is attempting to keep buyers interested and cap corn rallies. Yesterday’s Egyptian tender resulted in offers in excess of 1 million mt, higher than the previous tender which was bombarded with 775,000 mt. Given the competitive French price, and their success, it could well be that Russian and Ukraine supplies are overhanging the market for longer than usual this season.

• Yesterday’s corn bounce was assisted by suggestions that acres could well be reduced from the USDA’s latest update although the big picture remains fundamentally unchanged. The impending huge harvest and massive global supplies will limit US exports, or at least keep them in check. Harvest progress is being limited by weather at present but the outlook for the next week or so looks more promising. The likelihood of farmers selling soybeans rather than corn due to strong spot demand may well lend some short term additional support to corn prices.

• Soybean markets remain in an extremely oversold position but a switch in focus to weather and yield reports as harvest picks up looks likely to leave the downward price trend intact – for now. Rallies based upon tightness nearby are likely to be short lived in front of high yield expectations as well as growing talk of an even bigger S American acreage and potential output adding to what appears to be the growing US end stock position.

• Evening update:

• Reuters subsidiary, Lanworth, today released their latest  report which showed 2014/15 global corn output at 1,005 million mt, 17 million mt above the USDA’ latest. 2014/15 global soybean output at 317 million mt, 6 million mt above the USDA’s latest. 2014/15 global wheat output at 717 million mt, 3 million mt below the USDA’s latest. 2014/15 global rapeseed output at 70 million mt, 1 million mt below the USDA’s latest.

• Stratégie Grains have reduced their forecast for EU 2014/15 wheat imports by 30,000 mt to 3.2 million mt. The decline in price of French wheat now places it more competitive into Spain than Ukrainian, which has been the front runner so far this season. Soft wheat output was revised higher to 146.6 million mt, an additional 2.5 million mt compared with their August estimate. With exports revised upwards by 600,000 mt to 24.3 million mt vs. 29.1 million mt last year (we think this optimistic) end stock look set to grow by 700,000 mt to 18.7 million mt vs. 10.8 million mt in 2013/14.

• CBOT soybeans and wheat closed a touch higher whilst corn edged lower in quiet trade today. Traders are awaiting crop yield data, looking for confirmation of some of the monster numbers which have been recorded in the southern states. These numbers should be forthcoming in the next week, and will help determine future price direction. The weather outlook appears to be favouring the Central US soybean and corn harvest in the next 7-16 days, and will aid crop maturation.

• Russian wheat harvest appears to be progressing well, and the outlook for 63 million mt continues to look reasonable vs. USDA’s 59 million mt. A similar picture appears to be emerging with their corn crop, despite it still being early days, yields look good and an extrapolated output of close to 14 million mt looks possible vs. USDA’s 12.5 million mt.

• Midday comments:

• Yesterday and overnight saw wheat trade either side of unchanged in a period of relatively limited fresh news. It feels as if the wheat market has been looking to the corn market for direction in the absence of other drivers. Some snow and heavy rains in the northern Plains and Canada may possibly provide a degree of support as talk of quality and production downgrades surfaces once again although even higher Russian output ideas and a drier outlook over the next ten or so days in Argentina offers a contrary viewpoint. Monday evening’s crop condition and progress report showed spring wheat to be 74% complete vs. 58% a week ago and the ten year average of 85%. Winter wheat is 12% done vs. 3% last week and the ten year average of 13%, the highest recorded was 22% in 1987, and the lowest was 9% in 2012. Egypt announced a further wheat tender after the close last night, this time for mid-October shipment, the results are expected later today, and we will hopefully be in a position to report on them in the evening update.

• Corn, like wheat, traded either side of unchanged yesterday and overnight with some speculation that the FSA (Farm Service Agency) report would indicate lower corn acres in future USDA reports and thereby limit market downside. Weather conditions rare somewhat mixed with this week trending drier across the Midwest for most of the week and temperatures normalising, rain in the western Plains could well return by the weekend adding to already wet soil conditions potentially raising an potential harvest delay issue. Old crop supplies remain adequate and a “soybean like” squeeze feels unlikely. Corn was rated 74% good/excellent, which is unchanged week on week and compares very favourably with the ten year average of 57%, the highest rating was 85% in 1986. Harvest progress remains unchanged on last week at 4% vs. the ten year average of 11%. The cool and wet conditions this season, whilst pushing up potential output, have also had the knock-on effect of slowing development and maturity somewhat but the forthcoming war and dry conditions should provide some benefit this week.

• Soybean markets saw some short covering on colder weekend weather, wet harvest soil conditions and suggestions that the FSA report may trim acres, volume trade was described as “thin”. Short term nearby cash levels remain firm as processors “pay up” rather than face short term closure whilst awaiting new crop supplies – still. In S America, Brazilian farmers are officially able to plant early maturity soybeans and conditions have been ideal with good showers and soil moisture levels. These soybeans would typically have an end-December harvest and would add to the “wall of supply” that will face the market in the latter part of this year. There was an anticipation of a drop in the soybean crop condition following a cold and wet week, but the good/excellent rating remained at 72%, unchanged week on week, and well above the ten year average of 56%. The highest rating previously was 74% in 1994.

• Evening update:

• Egypt’s GASC secured 180,000 mt of wheat, in what turned out to be an interesting tender, from France at an average of $247.79, a C&F price that was cheaper than all but one of the Russian FOB prices. To see seven Panamax size vessels of Russian wheat at GASC spec for a shipment just four weeks away is surprising to say the least, and interestingly, US soft red was on a par with Russian (to Egypt). Russian premiums are a record high to French at present although prices did dip following the tender.

• Corn prices in Paris closed a touch higher but good weather across the EU and weaker Chicago markets kept a lid on the advance. There is a belief that the French crop will come in well above 17 million mt, and the EU crop will top 70 million mt, alongside a huge feed wheat crop and increasing ideas of barley production. There is little to suggest anything other than a huge surplus of feed grains!

• CBOT wheat and soybeans closed lower whilst corn finished just in positive territory; all fading from earlier short covering rally attempts. News that China had signed an agreement for 4.8 million mt of US soybeans to be supplied over the next year was seen as bullish, and Nov’14 beans rallied almost to $10.00/bu. This volume represents around 6% of China’s annual imports, and as a “frame” agreement is less important that the market initially considered. However, the onset of harvest and ongoing huge yield reports paved the way for the bears once again as the market retreated lower. The harvest is spreading across the Midwest with reports that the E Midwest will begin harvesting in earnest by the weekend or early next week at the latest. The W Midwest is still 10-14 days off but once under way will see a deluge of supply hit the market. Early Midwest yields are coming in at 65-90 bu/acre for soybeans and 185-270 bu/acre for corn, trends that were seen in the Delta and southern states and are being replicated further north – for now.

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

Weekly Update 12 September 2014

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

Fund positions

To download our recap of today’s USDA report please click on the link below:

USDA Recap 11 Sep 2014

• Midday comments:

• Soybeans look to be taking more freeze risk premium out of prices and the market feels as if the threat to the crop is minimal right now. Interestingly there is still good nearby cash demand fr=or soybeans in the US, and this is still providing some support. Expectations are now for quiet trade into Thursday’s USDA report when an upward revision to soybean yield is anticipated. The latest private forecast comes in at 47.1 bu/acre vs. 45.8 a month ago. Regardless of which estimate one looks at, the direction of forecasts shows an upward trend. Focus is not only on yield, World stocks look as if they could reach as much as 90 million mt, which is significantly over the previous record level, which stands at 70 million mt.

• In corn there is little in the way of fresh news overnight, particularly on the supply side. Doubts over US export volumes should China not return to the party continues to give the edge to the bears. Global end stocks look set to jump again on Thursday with a figure in excess of 190 million mt widely expected. Both Ukraine and Argentine FOB corn offers look to be discounted to US levels, which argues the latter is overpriced and needs to drop in order to compete. This season loos very much to be a “buyer’s market”.

• Wheat markets started softer as EU and US prices eased and news from Black Sea regions remained bearish. Additionally, expectation of increased global stocks to be announced Thursday added to downside momentum. The bulls only have heavy rain in Argentina and a slight risk of winter-kill in Australia, which may trim output in both countries, to cling on to.

• Evening Update

• The market has been quiet in the run up to the USDA report tomorrow, pretty much as expected, and there have been more losses. Short covering and position squaring to reduce exposure pre-report has been very much in evidence as has end users taking some cover.

• France, the EU’s top wheat exporter, is expected to see third country export volumes to tumble this season, potentially by as much as 35% and correspondingly stocks look set to rise dramatically according to France AgriMer. Exports of 8 million mt vs. 12.2 million mt last year were the figures quoted with the poor harvest weather impacting quality adversely. One interesting figure in the data was the French EU export number at 8.1 million mt, above last year’s 6.83 million mt. Why the rest of the EU needs French wheat this year, of all years, is beyond us!

• Matif wheat made further losses and contract lows in what seems to be a never-ending slide, although we know that it will end, the question being, “When?”

• Midday comments:

• As weather reports suggest less extremes of temperature  by the weekend some of the weather inspired risk premium appears to be coming out of the market and focus is moving back to the fundamental explosion of supply in coming months. Soybeans look as if they will remain under pressure even after the US harvest is over based upon what looks likely to be huge plantings, or at least planting intentions at this stage. Thursday’s USDA report is expected to show a jump in soybean yields from the August data, and also talk is already circulating on an even bigger jump to final yield from the forthcoming September report.

• Corn, like soybeans, was impacted by both favourable weather and reduced freeze risk in coming days. The market will have a tough job holding onto gains in the face of what appears to be a huge upcoming crop. The market is anticipating a USDA yield marginally over 170 bu/acre, although the range includes as much as 174.1 at the high end.

• Wheat prices tended firmer on strong cash markets as farmer selling was limited and premium grades retained their concern over quantity, this was the only positive market influence.

• Evening update:

• CBOT corn, wheat and soybeans hit new lows as the US$ rallied to its strongest since 2010. Funds added to shorts or exited from “stale” longs. The new lows in Dec ’14 corn and Nov ’14 soybeans added to the bearish profile, likely to extend into the year end. Soybeans broke through the $10.00/bu level potentially triggering further declines.

• Delta and southern US corn and soybean yields continue to impress and make record larges in some cases. Some reports from early corn in Illinois are reporting 200 bu/acre leaving the question, “how big is big?”

• In Paris we saw the second straight contract low despite the forthcoming quiet week (Paris Bourse and USDA) and the upcoming Algerian tender. Cash buyers are scarce and farmer selling is also equally quiet, in relevant regions the farmer appears content to store wheat and sell corn and sunflower seed from the combine. Paris corn also made it’d fourth contract low in five sessions as cash markets saw zero bids! As harvest is just around the corner there is a feeling of desperation at the bearish news that seems to keep coming from US, S America and Black Sea.

• Last night’s US crop condition report was a follows:-

Corn 74% good/excellent, unchanged week on week and up from 54% year on year. Soybeans 72% good/excellent, again unchanged week on week, up from 52% year on year. Spring wheat 60% good/excellent, down 3% on a week ago. The crop is 58% harvested well below last year’s 78%, which is also the five year average. Winter wheat planting is 3% done and very close to historic levels.

• AgroConsult sees the 2014/15 Brazilian soybean crop at a record 95.1 million mt vs. Lanworth’s 98 and USDA’s 91 million mt. Their outlook for the Argentine soybean crop for 2014/15 is also a record, and is 56.6 million mt vs. USDA’s 54 million mt.

• Ukrainian grain exports so far this season (July 1 to Sep 8) are at 5.98 million mt, of which wheat accounts for 3.37 million mt, and is up 44% on a year ago.

• Australia’s Abares sees the 2014/15 Aussie wheat crop at 24.234 million mt below its last estimate of 24.588 million mt. They also reduced their outlook for Canola to 3.388 million mt from 3.47 million mt previously.

• From a US weather perspective, there appears to be little in the way of threat from damaging cold through until 24 September according to latest forecast updates. At that time it is anticipated that crops will be sufficiently mature to avoid any substantive damage.

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

Weekly Update 5 September 2014

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

Fund positions

• Midday comments:

• Yesterday’s downside break-out in CBOT has left the market vulnerable to further declines with $5.23 the next objective, followed by $5.15 basis Dec ’14. The last three months of price consolidation add credence to the “next leg down” theory.  The large volume offers (775,000 mt) in the Egyptian tender plus (conflicting) reports on the imminent Ukrainian ceasefire have left the bulls looking for a place to hide. Given the recent history it would be fair to suggest any resumption in hostilities could leave the market vulnerable to a big upward move, particularly as if seems that funds are starting to rebuild their shorts on a daily basis. Australian weather conditions are trending more favourable into mid-month with showers forecast in southeast and southwest areas. News from China that SinoGrain, the storage company, have stockpiled three times as much wheat this year as they did last year will doubtless lower import expectations – conversely reducing exports from exporting nations. The suggestion that China’s wheat imports will only reach around 57% of last year’s at 3 million mt will not be seen as bullish.

• Corn dropped to four year lows yesterday as crop condition improved, early harvests prove to be better than expected and a rash of private forecasters keep 170 plus bu/acre expectations to the fore. Weaker cash basis in the US Gulf, Ukraine and S America all conspire to keep a lid on prices and there are even suggestions that EU feed wheat now calculates into SE Asia. The likely knock-on effect will be to keep downward pressure on S American plantings, particularly as current corn price levels are below the cost of production in much of Argentina.

• Improved soybean crop conditions and sharply improved yield expectations helped the market lower yesterday although a close eye should be kept on short-term cool weather in some regions. If the next week escapes a freeze (which we believe will be the case) warmer conditions are forecast to return in the second half of the month. Freeze risk will likely trigger fund short covering and a push higher in prices. Early downside targets are $10.08 with potential to see a break as low as $9.77, or lower, as harvest ramps up.

• Midday comments:

• The European Central Bank today reduced its benchmark interest rate to 0.05% in an effort to kick-start flagging Eurozone economy whilst the UK’s Bank of England left its record low rate unchanged for another month. The US$ also surged vs. € across the afternoon trading period.

• The day has developed into another down day with lower prices pretty much all round. There is news that end users are attempting to switch soybean meal contracts from US origin to S America, specifically Argentina, as exporters reduce their FOB basis in efforts to attract new crop sales. Exiting the US leg will doubtless be expensive but US 2014/15 sales pace looks set to reduce dramatically as Argentina becomes ever more aggressive and competitive.

• Paris wheat closed mixed and as much as €2 off the lows, and with the € dropping over 200 points to 14 month lows the market move is hardly viewed as stellar!  Brussels granted wheat export licences amounting to 864,378 mt this week bringing the season to 4.854 million mt, which is just ahead of last year (3.6% or 168,934 mt).

• With Russian cash wheat carry costs looking at risk we view this as a potential trigger for another leg down in cash prices – unless, of course, the Russian Government moves on intervention. In corn, the break to new lows makes technical support difficult to establish. As the US looks to be expensive in export terms and with increased confidence that yield will be 170 bu/acre plus it is getting more difficult to see what can stop a considerable fall in US price levels – excepting a geopolitical catastrophe or climatic disaster! In soybeans, history shows that in high yielding years (and this looks likely this year) soybeans (and corn) tend to make their price lows in October/November rather than the more usual September. The markets, as they currently stand, clearly look as if they have more downside yet.