• News has been limited as the US holiday has taken its toll on market activity, however, CBOT markets closed in an explosion of activity with the soybean complex sharply lower in late trade, corn also lower but to a lesser extent whilst wheat made somer further gains.

• Focussing on wheat to begin, the Russian Deputy Ag Minister, Dmitry Yuryev, advised that Russia will not ban grain exports in 2015 due to the sharp fall in the value of the Rouble, however, it could consider a variable tariff on grain exports. The trade seem to be dismissing any tariff adjustment in the near term as Russian export pace so far this year has made new record highs. Unless severe adverse weather conditions impact crop development and overwintering it is not expected that an export tax will be applied.

• From a technical chart perspective (in soybeans and meal) we have been watching the formation of a “head and shoulders” pattern in recent days, and it appears that this has been recognised and technical traders are jumping  on board. There is a methodology that allows a calculation of the move, which is a mirror of the upside, and (if fulfilled) would provide good rewards to those who have the confidence to short the market.

• This is traditionally the time when seasonal “tops” are scored more often than not, and (given favourable S American weather) we could be in for a repetition this year.

• Now that the Thanksgiving holiday is behind us, and we return to a full week of trading next week, we would expect the fundamentals to reassert themselves and the older downtrend to be resumed.

• Today has seen the grains making gains and the soybean complex shedding value ahead of the US Thanksgiving holiday shutdown. Trade has been active ahead of the Friday December first notice day and the holiday weekend has created active rolling of positions to deferred contract months. Interestingly we have seen the Dec/Jan soybean meal spread push wider to a new high of $24.00 Dec premium, which is doubtless causing someone some pain. The last high was set in October and today’s new high created a flurry of activity, which when added to EU and US meal shorts being forced (as December looms large) to close Dec positions in the thin pre-holiday market, pushed front month values even higher. The high values may well incentivise crushers to tender meal onto the futures market at a record and somewhat surprising market high.

• The announcement of a further sale by US exporters of soybeans (120,000 mt) to China came as something of a surprise. However, unpicking the details suggest that it was traded on a basis and could well be switched to S America if the March cash basis permits, and it seems almost inevitable (at this time) that it will. The large volume of soybeans already shipped and en route to China as their crush margins ease back also points to softening import demand into the New Year.

• Nearer to home, the EU’s proposed €315 billion investment package, aimed at boosting the flagging economy, pushed equity markets modestly higher.The US$ also rallied as the market viewed the package proposal as being “too little, too late”. Crude oil also eased further to fresh lows ahead of the upcoming OPEC meeting.

• Soc Gen, in a widely distributed forecast has stated its bearish outlook for soybeans with a price forecast for the Jul/Sep quarter dropping to $9.49/bu, more than $1.00 lower than current values. They added that the near term faced the challenge of a drop off in export demand for soybean meal, which has latterly been the price prop for markets. Sales pace was noted to have eased back from its early rapid level as new crop soybean supplies reached the market. Their view on S American output was interesting insofar as they saw it “mixed” with an El Niño pattern potentially leaving N Brazil with dry conditions, and S Brazil to C Argentina wetter than average. If output came in at expectation they suggested that it would herald a further downtrend in already reduced prices in the second half of 2015 in an overall picture of more than adequate global stocks.

• Tuesday has seen something of a classic “Turnaround Tuesday” style of trade with pricing boards deeply green as soybean meal has led the advance on active EU and US domestic end user pricing that has to be fixed before December’s first notice day. The action in soybean meal has been sufficient to lift the entire grains complex. As prices rose active corn elevator selling was noted and producers took the opportunity to cash in on higher levels, potentially for volumes they may struggle to store.

• Brazil is reported to have now planted 74% of its soybean acres, a mere 2% behind last year and 4% behind their five year average. The regional breakdown shows Rio Grande du Sul at 44% and Mato Grosso at 95%. The current weather will permit planting to continue with little interruption, and it is expected that as much as 88% could well be in the ground by December 1st. With the sharp fall in the Brazilian Real vs. US$ it is expected that 2015 winter corn seedings will rise on the back of improved margins.

• Reuters today reported on the significant increase expected in Brazilian farmer’s usage of farm storage bags. The large, sausage shaped, bags used for on farm storage are expected to see increased usage by as much as 30% in 2015 as corn stocks reach record levels and soybean sales stagnate in hope of improved prices. Argentina has been using these bags for decades but usage in Brazil is a relatively recent storage alternative. Storage space has not kept pace with the growing output of corn and soybeans in Brazil and conventional silos are either full or too expensive for many farmers.

• US winter wheat was reported to be 58% good/excellent compared with 60% last week and 62% last year. Crop emergence is 92% vs. 87% last week and the five year average of 89%. Corn is all but harvested with 94% now gathered compared with 89% last week and the five year average of 92%. Soybeans are likewise well harvested at 97%, last week’s level was 94% and the five year average stands at 98%.

• Whilst it is recognised that US/global wheat yields have a strong correlation with spring weather rather than winter temperature or crop establishment there has been much discussion over recent dryness across Russia’s winter wheat belt. Precipitation in October and November ranges from 30-60% of normal across the Central and Volga regions to 90-110% of normal across the Southern region. Some suggestions that producers in Central Russia have abandoned a significant area to be replanted to barley, corn or oilseeds have been heard. It is certainly clear that Russia’s wheat yields are variable, changeable weather conditions and the fact that a vast region, in excess of 2,500 miles, embraces differing climates will almost always provide a variety of outcomes. Current thoughts are that the harvested wheat area will be lower on account of reduced winter wheat offset by more spring. Yield is anticipated to be down a touch and output potentially 6 million mt lower than 2014/15, I.e. 52.9 million mt vs. 59 million mt in 2014/15. Higher end stocks are thought to partially offset the yield reduction. However, for any lasting bullishness to be construed it is likely that output will have to drop below 49 million mt.

• As we start the holiday shortened week it has been noteworthy only by lack of news! CBOT markets have traded lower with corn, in particular, slipping on technical selling and a high potential for the December contract to be hit with big deliveries if prices were to remain higher. Wheat prices, whilst lower into the close, have traded either side of unchanged with a cheap Saudi Arabian tender capping rallies and cold/snow across N Russia is lending some support. Market volume is lacklustre even by holiday week standards.

• The Saudi wheat tender was 345,000 mt and is likely from Germany for Feb/Mar shipment. The price quoted appears $9-$12 below Friday’s  quoted levels. There is a suggestion that Canada could be a possible origin, but the FOB levels would have to be some $15/mt lower in order to offset dearer freight costs. The point being made is that world wheat is being offered and traded at cheap levels in a market awash with supplies. It is hard to envisage any serious bull market in the absence of serious new crop weather problems.

• Scratching for news it was reported that the US sold 235,000 mt of soybeans to China and 174,000 mt of soybean meal to Thailand. The significance of the Thai sale is that it makes Thailand the second largest destination for US meal this year at 516,000 mt, and the latest transaction is in a deferred position which suggests that US crushers are prepared to compromise prices in order to compete with S America and lock down volume and margin. It was also noted that interest from China is slowing and the latest business is merely filling a few gaps having already secured their US tonnage. Some argue that China will cancel 1.5 to 2.5 million mt of US origin soybeans if S American logistics support February/March shipments, which would clearly impact the US S&D adversely.

• We should remember that Brazilian export capacity has ramped up significantly in the last few years, and that loading delays such as were seen a couple of years ago now appear to be a thing of the past. A number of new ports on the Amazon River have opened, and speed of loading at Paranagua has grown as a result of investment. One estimate has suggested as much as a 40% speed gain has been achieved in the last few years and Brazil is in an excellent position to supply the world with soybeans and meal commencing mid-January when the first new crop supplies become available.

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Weekly Update 21 November 2014

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Fund positions

• Egypt secured 60,000 mt of French wheat for late December shipment, which further confirms the competitiveness of France when compared with the rest of the world right now. This is the sixth successive tender success this season and leaves France as the leading supplier, a marked difference from last year when Ukraine, Russia and Romania led the field. The reported cost to Egypt was $259.87/mt  basis C&F, which was $0.75/mt higher than the last tender on 5 November. No US wheat was offered, and offers from Ukraine, Russia and Romanian offers were deemed too dear.

• CBOT markets were somewhat subdued yesterday and bounced on suggestions that the EPA would revise biofuel mandates although we have heard of this before! Recall that by law, the mandates were due to be set by 30 November 2013, almost a year ago! Despite the US Thanksgiving holiday being next Thursday the markets already have a holiday feel to them.

• US weekly export data was released as follows:

Wheat; 361,700 mt which is within estimates of 300,000-500,000 mt.
Corn; 908,700 mt which is above estimates of 500,000-700,000 mt.
Soybeans; 487,500 mt which is below estimates of 700,000-1,000,000 mt.
Soybean meal; 265,800 mt which is above estimates of minus 100,000-plus 100,000 mt.
Soybean oil; 19,600 mt which is within estimates of 5,000-20,000 mt.

• Brussels granted weekly wheat export licences totalling 654,581 mt, which brings the season total to 12.2 million mt. This is 1.025 million mt (9.2%) ahead of the same time last season underlying the competitiveness of EU wheat from a global perspective.

• In summary, Thursday’s price uplift has the feel of the good plod “dead cat bounce” and attempting to resuscitate the poor feline may well prove fruitless!

• Wednesday started on a weak note following the lower closed yesterday, and we thought that an early market overview would be appropriate in the absence of any fresh news of note. As far as wheat is concerned, there are many winds blowing; there are concerns over the Australian, US and Russian crops as well as a lack of export licences from Argentina but on the other hand there are still large exportable surpluses in Europe and the Black Sea. Additionally, the weak Black Sea currencies also hold a twin position with lack of farmer selling (using his grain as an inflation/currency hedge) on the one hand and attractive face value prices on the other. From a US perspective, their wheat is too expensive, by some way, and the influence of the funds appears to be dissipating – at last.

• From a corn perspective, as we have stated for some (considerable) while, it has been hard to be bullish when looking at the fundamentals. In the face of a much talked about big crop and massive carryout the US market should be looking at a number of issues including declining domestic feed complex (corn, wheat and soybean meal), negative blending margins, overpriced export levels and what appears to be a developing favourable S American weather pattern. These issues, when combined, suggest the USDA’s end stock figures could well be understated – possibly by some way.

• In soybeans, everyone is now fully briefed on the old crop tightness and consequent squeeze on cash soybean meal prices which pushed the soybean price rally.. Monday’s interpretation of the soybean crush and export data in a bullish manner has now segued into a more realistic realisation that the soybean meal pipeline is being filled, and rapidly, and the market is adjusting accordingly. We approach first notice day on the Dec contract a week on Friday and cash deliveries are not expected but the large speculative position still remaining in the Dec contract could well give us a good firework display.

• In the US heartlands temperatures plummeted 12-25 degrees below average last week as has been well reported. The good news is that next week is forecast to warm up considerably with improved precipitation in the coming fortnight. The cold snap is likely to have stopped growth in wheat; winterkill is not expected to be an issue in the Great Plains, the US breadbasket, where wheat was planted on time and has developed adequate hardness. Potential issues are being discussed in Midwest soft red wheat where some planting was delayed reducing the growing period and autumn pre-dormancy hardening period. In some crops emergence had not occurred by November 11, and there is a historic correlation between such conditions and reduced yields. Soft red wheat accounts for around 30% of the US winter wheat crop.

• As we approach today’s close CBOT prices remain deeply red, fund selling and a reduction in Chinese soybean pricing appear to be key. It is reported that some EU importers are awaiting lower levels before committing to fixing prices, and it feels as if they may well get their wish before long. US cash soybean meal continues to weaken, and talk of cargo switching to S America is strangely absent today.

• Corn fell under its 20 day moving average tipping prices still lower as some traders exited stale longs and switched to the short side. In soybeans, the front month Jan ’15 contract has been close to testing $10.00/bu support amid active fund selling. Wheat is following corn and approaching support levels, which have held today, but look as if they will be tested – maybe later in the week.

• One active spread trade is featuring at present, that being long soybean oil/short soybean meal and feels as if it has “legs” and a potential profit looking forward. Short term price targets are $9.95/bu basis Jan ’15 soybeans, which is the Nov 5 low, followed by$9.83, the 50 day moving average. Dec ’ 4 corn has a target price of $3.50/bu whilst Dec ’14 wheat appears to want to hold support at $5.25-$5.31 – for now!

• At the close tonight it feels like a “heavy” market with further pressure to come.

• Wednesday started on a weak note following the lower closed yesterday, and we thought that an early market overview would be appropriate in the absence of any fresh news of note. As far as wheat is concerned, there are many winds blowing; there are concerns over the Australian, US and Russian crops as well as a lack of export licences from Argentina but on the other hand there are still large exportable surpluses in Europe and the Black Sea. Additionally, the weak Black Sea currencies also hold a twin position with lack of farmer selling (using his grain as an inflation/currency hedge) on the one hand and attractive face value prices on the other. From a US perspective, their wheat is too expensive, by some way, and the influence of the funds appears to be dissipating – at last.

• From a corn perspective, as we have stated for some (considerable) while, it has been hard to be bullish when looking at the fundamentals. In the face of a much talked about big crop and massive carryout the US market should be looking at a number of issues including declining domestic feed complex (corn, wheat and soybean meal), negative blending margins, overpriced export levels and what appears to be a developing favourable S American weather pattern. These issues, when combined, suggest the USDA’s end stock figures could well be understated – possibly by some way.

• In soybeans, everyone is now fully briefed on the old crop tightness and consequent squeeze on cash soybean meal prices which pushed the soybean price rally.. Monday’s interpretation of the soybean crush and export data in a bullish manner has now segued into a more realistic realisation that the soybean meal pipeline is being filled, and rapidly, and the market is adjusting accordingly. We approach first notice day on the Dec contract a week on Friday and cash deliveries are not expected but the large speculative position still remaining in the Dec contract could well give us a good firework display.

• In the US heartlands temperatures plummeted 12-25 degrees below average last week as has been well reported. The good news is that next week is forecast to warm up considerably with improved precipitation in the coming fortnight. The cold snap is likely to have stopped growth in wheat; winterkill is not expected to be an issue in the Great Plains, the US breadbasket, where wheat was planted on time and has developed adequate hardness. Potential issues are being discussed in Midwest soft red wheat where some planting was delayed reducing the growing period and autumn pre-dormancy hardening period. In some crops emergence had not occurred by November 11, and there is a historic correlation between such conditions and reduced yields. Soft red wheat accounts for around 30% of the US winter wheat crop.

• As we approach today’s close CBOT prices remain deeply red, fund selling and a reduction in Chinese soybean pricing appear to be key. It is reported that some EU importers are awaiting lower levels before committing to fixing prices, and it feels as if they may well get their wish before long. US cash soybean meal continues to weaken, and talk of cargo switching to S America is strangely absent today.

• Corn fell under its 20 day moving average tipping prices still lower as some traders exited stale longs and switched to the short side. In soybeans, the front month Jan ’15 contract has been close to testing $10.00/bu support amid active fund selling. Wheat is following corn and approaching support levels, which have held today, but look as if they will be tested – maybe later in the week.

• One active spread trade is featuring at present, that being long soybean oil/short soybean meal and feels as if it has “legs” and a potential profit looking forward. Short term price targets are $9.95/bu basis Jan ’15 soybeans, which is the Nov 5 low, followed by$9.83, the 50 day moving average. Dec ’ 4 corn has a target price of $3.50/bu whilst Dec ’14 wheat appears to want to hold support at $5.25-$5.31 – for now!

• At the close tonight it feels like a “heavy” market with further pressure to come.

• Looking at wheat first for a change, today has seen some excitement insofar as we have heard of a French vessel due to load 45,000 mt of wheat for the US at the end of the month. This backs up some of what we have been saying for some while, I.e. US wheat prices are simply too high! Or, turning that on its head, EU prices are too cheap, although we tend to believe in the former at this time given other world prices.

• US markets have closed in lower territory with soybeans and meal showing larger declines than the grains although corn did shed close to 1.5% on the day. Funds have been sellers, the trade seems to have picked up on the fact that peak US soybean exports is passing by and that record large US crush rates are likely to tip cash meal basis as evidenced by the switching of two further cargoes of soybeans to S America purely on price grounds as the southern hemisphere discounts grow ever more competitive. The US cannot afford to miss out on sales otherwise their end stocks will rise even further than already projected. It has been reported that eight cargoes have already been switched and two or three are being worked right now.

• There is a strong feeling in the market that the seasonal price top is now past, and that applies not only to soybeans and meal, but also in the grains as well. As mentioned previously the only real threat would come from adverse weather conditions in S America, and this looks unlikely with El Niño building and the correlation with near to trend or higher soybean yields in Brazil. We expect the recent lows (as opposed the season lows so far) to be tested before too long.

• The week started lower with corn, wheat and the soybean complex all trading in the red – until NOPA (National Oilseed Processors Association) in the US published their October soybean crush data. The soybean volume, which was expected to be large, was higher than expected and the market caught a bid on the back of the numbers, pushing levels higher. Additionally, soybean meal exports were higher than anticipated which added to sentiment. That said, the market cannot have it both ways, higher crush to satisfy short term demand from both consumer and exporter alike equates with strong cash demand and premiums, equals higher prices in the short term. Bigger supplies to satisfy the demand equates to a reduced demand pattern and alleviation of the bottleneck, hence reduced prices longer term – QED! The impact of logistical issues has been felt, and should begin to calm down in coming days.

• US weather has turned colder, as forecast, and this has lent some support but the forecast points to more seasonable conditions though it should be added that light snow cover is expected to insulate new crops from any extremes of temperature and reduce the impact of any possible damage.

• The US$ continues its strength, crude oil is $0.50-0.70/barrel lower and US equity markets continue to flirt with last week’s highs. The latest round of fund investment in corn, wheat and soybeans looks likely to dissipate and for any lasting bullishness to be maintained we will need a severe S American weather issue to develop – which looks unlikely at this time.

• Japan has confirmed that its economy has slipped back into recession – even amid the trillions of dollars of QE and fiscal stimulus that has been offered. The news was seen bullish for the US dollar with the EU also on the brink of recession and global economic growth elusive looking forward into 2015. It is possible that this may become the point of focus in coming weeks.

• Western US rail rates continued their collapse on Friday which should help the movement of grain to the Gulf. W Midwest rail rates are now well below last year and their 5 year average. It’s just a matter of time before the E Midwest sees locomotive/rail car delivery improvement. For soymeal deliveries there is an improved outlook in coming weeks and basis weakness across the E Midwest is increasingly likely.