• Following from yesterday’s commentary on wheat and its direction going forward we thought it interesting to start tonight by looking at relative global wheat values, which are converging as sellers look for food or feed markets prior to the onset of the 2015 harvest. At present prices have been driven lower as EU farmers appear to be holding large stocks as we approach another large harvest. Focus will soon turn to new crop growing conditions and the autumn lows, which may provide support. The following graphic hopefully illustrates the point.

• We have commented many times on the wheat vs. corn price spread, and attach a chart illustrating the recent correction, which again hopefully adds to our recent thoughts.

• The USDA has today released its weekly export figures as detailed below:

Wheat: 565,400 mt, which is above estimates of 250,000-450,000 mt.
Corn: 1,084,200 mt, which is within estimates of 850,000-1,200,000 mt.
Soybeans: 909,000 mt, which is above estimates of 200,000-400,000 mt.
Soybean Meal: 297,500 mt, which is within estimates of 150,000-350,000 mt.
Soybean Oil: 10,600 mt which is below estimates of 15,000-30,000 mt.

• Brussels issued weekly wheat export certificates totalling 672,392 mt, which brings the season total to 17,726,982 mt. This is 454,748 mt (2.5%) behind last year’s record pace.

• US wheat sales were better than expected and have put a floor into todays market prices (despite the foregoing comments). EU cash wheat markets refused to move lower today, despite London and Paris futures drop this week, and the early weakness in Chicago saw new found competitiveness.

• Our thoughts are that we will see additional weakness in corn and soybeans into the weekend as hedge related selling in ahead of the advancing Brazilian soybean harvest takes hold. Crude oil has seen light selling and is close to recent lows whilst gasoline and ethanol follow, the US$ is stronger, Rouble and €uro are weaker. Front month soybeans came close to testing support at $9.96, which if broken will see further declines.

• Whilst we may have been looking for signs of a bottom in wheat, it has to be stated that right now there is no technical signal to confirm this, and as such why buck the trend? The old adage of “the trend is your friend” has to be borne in mind for now. In corn we have heard that Ukraine has approved 20.5 million mt of corn exports for the season, and is running about 3.5 million mt behind last year at this time. Our information is that importers should not bid for Ukrainian corn unless they truly want to own it – caveat emptor!

• Today has been a “down” day with markets both side of the pond shedding value (soybean meal as the exception actually gained) as soybean oil and wheat led the way pushing to new (recent) lows. End users have been scale down buyers and picking, what they believe to be, value. Funds have been exiting from long soybean oil/short soybean meal spreads, hence the oil decline and meal gains today. There is also an expectation that US weekly sales data will show large US soybean meal exports as crushers are attempting to lock in positive crush margins amid slowing domestic demand, consequently trying to attract export business.

• US ethanol production data was in line with expectation and left corn grind also in line, maybe a little bullish as producers are still not cutting back production. However, US ethanol stocks rose 1.3% to 874 million gallons, as high as we have seen in recent years, and this is placing a strain on storage capacity. This will doubtless be a recurring theme in coming weeks and months. Negative US ethanol production margins have, at some time, to pressure production and relieve what will otherwise become historic stocks by early springtime.

• In Brazil we continue to hear of early yields reaching record highs, some 5-7% above last year and the 2011 record. It is only in the dry areas of Bahia and Minas Gerias where limited harvesting has taken place that losses will be unavoidable. A Brazilian crop of around 95 million mt still looks to be feasible.

• The decline in wheat values was clearly evident as funds continued to sell and French sellers attempted to offload stocks of old crop. There still appears to be demand from Asia for EU feed grade wheat and as stocks in France appear to now be of lower grade grain the reducing wheat/corn price spread is likely to attract greater prominence in feed rations. Consequently, this suggests to us that the downside in wheat has limits – assuming corn does not outpace wheat in a rush to lower levels. However, and there is always another side to the argument, EU new crop weather looks benign and with more snow forecast in the FSU with temperatures above normal there is no reason to suggest combined EU/FSU 2015/16 output should not be very similar to this year. That would lift end stocks to 50 million mt vs. the 25 million mt which is where we began the current year. Under these circumstances wheat looks set to vie with soybeans in the race lower!

• News today has come from in a variety of guises, US exporters reported further sales of 2014/15 soybeans to “undisclosed” destinations and at the same time China was reported to have cancelled another 120,000 mt of  soybeans for the same delivery period. Read into that what you will!

• Ukraine’s AgMin has suggested that their grain exports for 2014/15 will reach 37 million mt, which is 4.2 million mt more than last year’s total and somewhat higher than may have been anticipated given geopolitical tensions and suggestions of export restrictions.

• Markets in Chicago have seen soybeans trading lower as did the grains although as we approach the close (45 minutes to go) wheat is finding a touch of support and is just in positive territory. Soybeans have probably traded lower on fast declining US export sales and favourable weather forecasts into mid-February as well as reports that both harvest and safrinha corn plantings are proceeding well. Global soybean consumers are slap bang in the middle of a north to south hemisphere transition and even small price adjustments make a big difference.

• The big picture remains pretty much unchanged; there is an ample supply of soybeans in the world although it seems farmers continue to display a reluctance to sell with all that brings with it. However, as prices remain elevated (relative to potential end stocks) we are facing additional encouragement to plant ever large areas and the consequences to S&D’s can only be viewed as longer term bearish – the question is one of timing, when are we going to see prices break lower? Forecast corn acres in the US and trend yields (8 bu/acre below this year) suggest a 2015 crop of around 13.3 billion bu vs. a demand of some 13.5 billion bu, clearly at these levels there is little to suggest any significant price upside at this time. In wheat there still remains too much supply chasing too little demand and the potential for Russian supplies to come back and overshadow the market is beginning to look very real.

• Wheat markets in Europe led the way lower with London shedding £2.00 plus and Paris €2.50 in reasonable volume trade. The technical chart picture does not look bullish for either origin, and the Chicago chart looks even more vulnerable to lower prices despite being somewhat oversold right now. This could indicate that there is room for a bounce in the short term although the fundamentals do not support this greatly. Yesterday’s suggestion of a change to Egyptian moisture specifications appears to have unnerved the market, particularly the French!

• Chicago markets have been pretty lacklustre today, maybe they are anticipating the arrival of 3 feet of snow that is forecast to hit parts of eastern US in one of the worst storms in living memory. Aside from the snow in the US, global weather conditions remain benign and non-threatening, and “finishing rains” continue to remain in both the forecast and are materialising on the ground in S America.

• US exports for the marketing year through to last Thursday show corn to be at 562 million bu (up 9 million year on year), wheat at 539 million bu (down a massive 260 million year on year) and soybeans at 1,312 million bu (up 197 million year on year). It should be noted we are fast approaching the US soybean export season end as S America takes up the volume in coming weeks.

• Russian domestic wheat prices have declined from their early January peak and the government is failing (in spectacular fashion) to secure its 3 million mt of intervention purchases as domestic price levels remain higher than intervention price. At current exchange rates it seems Russian exporters can pass on the full export tariff at prices of $255/$260/mt, which translates to a cap of $5.60/bu basis CBOT contracts. The physical market seems undisturbed by controls on Russian (or Ukrainian) wheat exports.

• Also noteworthy, in an otherwise lacklustre market, is the fact that ongoing warmth and above normal precipitation across Europe, Ukraine and Russia looks likely to leave wheat winterkill levels below average so far this season.

• We continue to argue that it will take a significant weather disaster somewhere in the world to change what we believe to be a fundamentally bearish pattern right now. Lack of fresh market moving news or information is likely to see prices somewhat rangebound and any rally attempt struggling as we move deeper into S America’s harvest.

• Oh, finally we nearly forgot the Greek election, which saw the anti-austerity vote win the day in Sunday’s election! The early decline in the €uro (150m points) was reversed into a 70 point gain on the day. The Ruble fell a further 3% and Russian debt was again downgraded by S&P in the face of further sanctions. Matif wheat declined but rumour that Egypt’s GASC may be about to return to a max 13% moisture level left cash premiums on the defensive. There is little to point towards higher cash wheat markets at this time.

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

Weekly Update 23 January 2015

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

Fund positions

• Key today was ECB President Mario Draghi’s announcement that €60 billion/month would be injected into the Eurozone economy in bond purchases in an attempt to kickstart growth. This level on injection was greater that initially anticipated by the market, which looked for €50 billion/month. Market reaction was mixed but when all said and done the US$ rally persisted with little, if any, sign of slowing as the US remained the “safe haven” given its relative economic stability.

• Wheat markets received some support from agreement reached between the Ukrainian government and traders to limit exports to 1.2 million mt between now and the end of June. Whilst this is now agreed, the reality is that this volume is little different from the Jan/Jun export pace of recent years. Prior expectations were for exports to be in the region of 1.5-1.9 million mt. The key question that now remains is with shipments currently around 8.5 million mt, and feed wheat at least $40 over corn, where are they going to sell 3.1 million mt of wheat?

• Matif wheat failed to make any significant gains despite a 200 point drop in the €uro and another big week of EU wheat exports in which Brussels granted licences totalling 815,246 mt bringing the season total to 17.05 million mt. This is close to ½ million mt (2.7%) behind last season’s pace.

• CBOT markets were described a choppy with traders struggling to get to grips with the ECB announcement, strong US$ and crude oil, which continued what seems like its relentless decline dragging both gasoline and ethanol with it. The latest US update shows stocks of ethanol, crude and gasoline modestly increased week on week and the market is still looking for a price at which stock levels will begin to decline.

• S American weather forecasts show little change and favourable; Argentina is forecast to get the dry conditions it needs and rains look likely to persist across C and N Brazil in the coming week.

• Markets can easily be described in one word today, and that word is “Dull”, oh – we could also add “boring” – but that would make it two words!. It seems traders are awaiting Thursday’s ECB announcement on QE and its  implications on currencies before making any position change. Any rally attempts have been capped by persisting favourable weather conditions in S America.

• The current favourite ECB rumour is that a €50 billion/month package, or €600 billion in a full year is being considered. This is of course unsubstantiated and we will have to await tomorrow’s announcement.

• EU grains were equally inactive with slow demand and Ukraine remains an aggressive seller of corn as and when enquiry arises.

• It will be interesting to see what tomorrow brings.

• CBOT markets spent much of the day in negative territory but the grains eventually closed a touch higher whilst soybeans and meal remained lower at the close.

• It was announced that China cancelled a further 174,000 mt of 2014/15 US soybeans bringing the total (as far as we can calculate) to 459,000 mt. There is talk that the total will reach 1.5-2 million mt of cancellations/switches in the 2014/15 crop year! Chinese crushers that import more soybeans than they have ability to crush are reported to be experiencing difficulties in opening Letters of Credit, which could force the pace of cancellation/deferral/switch in coming days and weeks, which will further pressure prices.

• It feels that weather premium is being removed from the market place, justifiably in our opinion, as S American patterns turn more favourable. With Mar ’15 soybeans trading and closing well below the $9.91level (which we mentioned last week) the next downside target is $9.50 and with funds as noted sellers today this does not look to be an unreasonable target in the short term.

• Corn’s Mar ’15 target now rests at $3.75 and Mar ’15 wheat has traded at its $5.25 target although it closed 10 cents higher and we would prefer to see a close at or below support to confirm this target has been reached.

• Aside from Chinese soybean cancellations there is little in the way of fresh news. Ukraine is still actively offering corn for sale, specifically to SE Asia and N Africa and our information suggests they still have as much as 4.5 million mt left to sell into the mid-summer period.

• Australia has reduced its El Niño alert and are looking for more normal conditions going forward. This leaves a potential for increased dryness in the S and C Plains in the US and this needs to be watched going forward.

• US wheat and corn exports are lagging behind the pace necessary to reach the USDA’s latest forecast and the impact on end stocks and potentially prices should not be ignored!

• Finally, the Russian Rouble was weaker, Ukrainian Hryvnia nominally unchanged, military tensions resurfaced in Ukraine, crude oil fell, the EU announced no let-up in sanctions against Russia and later in the week we expect to see the ECB’s decision on Quantitative Easing as the €uro awaits its fate.

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

Weekly Update 16 January 2015

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

Fund positions

• France has sold another 240,000mt of wheat to Egypt in its latest tender for late Feb ’15 shipment. Interestingly the range of offers was from France, Romania ($10 too dear) and Argentina (also $10 too dear) with Russia and US notably absent fro the offer lineup. Prices were aggressive, as we expected, some $8 lower that the last tender on 8 Jan. Bear in mind that despite the earlier concern (which included ourselves) over French quality – not an EU issue – we are still looking at a 7 million mt (70%) stock increase even with 30 million mt of exports. With 16 million mt of exports to date (see below) it will be interesting to see where demand comes from for the required 14 million mt to make the season total. There is a potential for an EU/Black sea bloodbath in due course – watch this space!

• Mar ’15 soybeans broke through support at $9.91 but (interestingly) failed to close lower – just! It only feels as if it is a matter of time before we do so and pave the way for lower levels. Fund selling in soybeans and wheat is evident whilst buying in corn has been noted.

• The USDA has today released its weekly export figures as detailed below, interestingly, corn and soybean volumes were above expectations:

Wheat: 377,100 mt, which is within estimates of 250,000-450,000 mt.
Corn: 843,900 mt, which is above estimates of 550,000-750,000 mt.
Soybeans: 1,438,200 mt, which is above estimates of 700,000-900,000 mt.
Soybean Meal: 72,200 mt, which is within estimates of 25,000-150,000 mt.
Soybean Oil: 29,300 mt which is within estimates of 10,000-30,000 mt.

• EU wheat export pace picked up following the holiday season with Brussels granting weekly wheat export licences for 575,862 mt. This brings the season total to 16.239 million mt which is 425,045 mt (2.5%) behind last season’s record level.

• Informa Economics released their latest report which includes 2015 US planting estimates, corn is forecast at 88.6 million acres, previously 88.01 million acres; soybeans are forecast at 88.03 million acres, previously 88.78 million acres; winter wheat 40.452 million acres, previously 42.278 million acres. Production estimates were also forecast for 2015, corn at 13.5 billion bu with yield at 169.5 bu/acre; soybeans 3.9 billion bu with yield at 44.9 bu/acre; all wheat production at 2.2 billion bu with yield at 45.7 bu/acre.