• Markets have today traded lower for most of the day on fund liquidation amid active volume and as prices fast approached support levels. A clear level to watch is $9.91/bu basis Mar ’15 soybeans, which just held today. Tomorrow is another day and it may well see another day of fund liquidation, in which case support levels may well be tested further.

• US ethanol stocks are growing, and quickly, reaching their highest level since Mar ’13. Ethanol production margins in the US will turn negative in coming weeks and we would strongly suspect corn grind volumes to reduce as a consequence. The industry will have to slow down as US blenders cut back their discretionary blend volumes and this will doubtless impact prices in time.

• Matif wheat fell a further €3 to 4 reaching a one month low and cash premiums remained unchanged leaving FOB values correspondingly lower. The weak €uro and a reduction in French end stocks as reported by AgriMer (reducing by 200,000 mt on account of increased 3rd country exports) was insufficient to provide price support. Russian intervention purchases remain pitiful, at a reported 108,000 mt, the Rouble fell to a one month low, and it is becoming clearer that aside from crop and S&D issues, currency is the biggest single uncertainty and influencing factor in coming months.

• The Rosario Grain Exchange reduced its forecast for 2014/15 soybean production by ½ million mt to 54.5 million mt whilst corn production was seen at 22.4 million mt, which is 900,000 mt above its last estimate. Wheat output was estimated 100,000 mt higher at 12.1 million mt.

• Post USDA report market rationalisation has to agree that the released data confirmed combined stocks of corn, soybeans and wheat will hit record large levels and these form the pillars of global grain and oilseed markets. Soybean end stocks, at more than 90 million mt, showed the largest growth. Global bio fuel demand is now a mature market, we have to see growth in caloric intake to kick start a demand led bull market and this is looking less and less likely right now as China is the only hope of additional soybean demand, and we are not overly optimistic of any significant upside right now. The big picture is that there are simply too many grains and oilseeds, either as stocks or as growing crops, too allow for any sustained price recovery – unless we see significant adverse S American weather, and that is looking less and less likely right now.

• Attempts at a “Turnaround Tuesday” correcting Monday’s declines have proved (with 20 minutes to go) unsustainable as all markets trade in the red. Corn has led the way lower on little in the way of fresh news with funds noted as sellers of corn, soybeans and meal and buyers of wheat and soybean oil. Corn breached the 50 day moving average, which sparked some further selling and eyes are on the weekly close (albeit some way off) which may well confirm season highs have been made. If confirmed, we could well see something of a sharp selloff as long liquidation takes place.

• The report from Reuters that Ukraine’s AgMin has asked traders to limit milling wheat exports has (so far) not impacted markets. The requested cap at 200,000 mt is actually at the upper end of volumes exported in the last three years, and as such not of huge significance – also we understand not mandatory at this time.

• As we approach the close in Chicago the charts looks extremely vulnerable to lower levels, particularly in corn, but also wheat and soybeans, as prices decline. The pattern in the remainder of the week will be key to direction into early spring.

Our USDA recap can be downloaded by clicking on the link below:

USDA Recap 12 1 15

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

Weekly Update 9 January 2015

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

Fund positions

• Egypt’s GASC tendered for wheat again yesterday after the close, this time for mid February shipment, and has awarded 180,000 mt all to France. The three cargoes averaged a C&F price of $263.65/mt, which is some $10.00/mt below their last purchase. Despite the tender invitation specifically including Russian origin supplies because of their “exempt” status from the recently announced export curb it was noticeable that there were no Russian offers. This latest tender brings the season purchase total to 3.085 million mt, by comparison last year’s import purchases reached a total of 5.46 million mt in addition to 3.7 million mt of locally sourced wheat.

• The US released weekly export data as follows:

Wheat; 226,300 mt which is within estimates of 200,000-400,000 mt.
Corn; 597,700 mt which is below estimates of 600,000-800,000 mt.
Soybeans; 910,900 mt which is above estimates of 500,000-700,000 mt.
Soybean meal; 37,200 mt which is below estimates of 50,000-200,000 mt.
Soybean oil; 30,200 mt which is above estimates of 5,000-20,000 mt.

• Brussels eased back on the weekly pace of wheat exports for the second week running (both holiday weeks) with certificated granted for 210,339 mt. This brings the season total to 15.663 million mt which is marginally behind last season’s record figures. Weekly corn imports reached a figure of 213,000 mt bringing the Oct-Sep season total to 1.877 million mt, which argues to a season total of close to 8 million mt (at current prices). Interestingly, both US and S American corn prices are cheaper on an FOB basis than Ukrainian offers, and could potentially leave Ukraine with a major stock build going into 2015.

• Despite news of “brutal cold” in the US, fears that next week’s meeting in Kiev between the government and exporters could see a “copy cat” of Russia’s latest export curb, and the sale to Egypt by France, we still saw Matif wheat close sharply lower. The prospect of French stocks set to grow to more than 5 million mt and with early new season crop development and conditions looking favourable, current price levels may well look high in a couple of months time. Today the market has a feel that it doesn’t care if Black Sea closes for business right now! Early season EU concerns over quality appear about to be replaced by late season concerns over a 70% increase in end stocks, and that is despite what may well end up being with 30 million mt of exports!

• Markets are a touch easier with under an hour to go in Chicago as fresh news is limited and the market anticipates fund rebalancing. It is expected that the rebalance will see some selling in wheat and corn and limited movement in the soybean complex. Aside from that, traders are awaiting Brazil’s CONAB data on Friday and, of course, the USDA figures on Monday, and as a consequence there is little else to report.

• The latest weather forecast across Mato Grosso and C Brazil in the coming two weeks is predicting cumulative rains of 2.5″ to 6.0” covering up to 80-85% of the country’s growing region through to Jan 22. This is reportedly sufficient to bring the soybean crop to maturity and crop scouts are continuing to predict excellent yields. The East/N East however (Bahia and Minas Gerais) are forecast to receive only a trace of precipitation and crop stresses are reported to be likely. Losses in these regions are likely to be more than offset by gains in S Brazil. Argentina is also forecast to benefit from substantial rains in coming weeks boosting their output potential.

• Markets have maybe played second fiddle to other news today; Deflation in Europe; the continued fall in the price of Crude Oil and the €uro making nine year lows (again) to pick the major headlines. As a consequence of falling crude prices corn has come under pressure as investors look even more closely at the economics of ethanol production which is under the cosh. West Texas Crude Oil prices tipped below $48/barrel and Brent has dipped below $50, numbers almost unimaginable a year ago! The soaring US$ vs. €uro, which almost breached 1:18 earlier in the day is making US prices look uncompetitive and it will be interesting to see if this is reflected in next week’s USDA estimates.

• In markets, corn is hovering just above the support provided by the 50 day moving average, which if broken will likely pave the way to lower levels particularly if funds decide to either exit longs or add to short positions. Wheat in Chicago is also very close to 50 day moving average support and soybeans are also closing in on the same support trigger. It seems that funds are willing to reduce risk ahead of Monday’s report.

• It is reported that China has managed to auction some of its state corn reserve which could pave the way for maybe 10 cargoes to be imported under licence and it is thought by some that S American or Ukraine origin will be most likely, despite being around $10.mt above US Gulf, due to lingering GMO concerns.

• In Brazil the first export terminal has switched to soybeans from corn as new crop availability grows. Reported yields in Mato Grosso are record large we have heard, no doubt a trend which growers hope will continue!

• Rumour and counter rumour continues to dominate markets in the post holiday trading period as we lead into next week’s USDA report. Today’s US rally in wheat (which did not follow through to the close) was based on rumours that Russia had followed Ukraine in stopping VAT reimbursement on exports. MATIF closed flat as some “traders” (always nameless!) cited switching into corn from wheat as the reason because corn had more upside potential – dumb and dumber springs to mind!

• Early trade saw an attempt at “Turnaround” as we suggested yesterday, but concern over coming extreme cold in S Midwest soft red wheat areas put an end to that. We are told there is adequate snow cover, but fears still exist over winterkill (unjustified we are told).

• Other news is thin apart from a few fresh crop estimates, which includes Informa Economics’ latest figures. They peg the 2014 US corn yield at 172.7 bu/acre, below the last USDA figure of 173.4 bu/acre. Soybean yield was estimated at 47.6 bu/acre vs. USDA at 47.5 bu/acre. Their estimate for harvested corn acres rose to 83.527 million which is430,000 above the USDA. 2014 corn output was estimated at 14,425 million bu, 18 million above the USDA’s November figure (no Dec estimate). 2014 soybean production was put at 3,969 million bu, an increase of 11 million on the USDA’s November figure.

• There were no real surprises in the Informa figures, some raised an eyebrow at the rise in corn harvested acres, however we did suggest some while ago that the “official” data was incomplete this year and subject to revision – in time.

• Informa also estimated Brazil’s 2014/15 corn crop at 72.25 million mt, an increase of 3 million mt month on month. The Ukraine 2014/15 crop was also increased month on month, by 1.5 million mt to 28 million mt.

• Finally, the post holiday catch up in EU wheat export licences shows that 987,741 mt of certificates granted over the two week period. This brings the season total to 15.453 million mt, which is 352,261 mt (2.3%) ahead of last year.

Markets moved higher to start the first full week of 2015 in some sort of response to the 2014 year end drubbing although the fundamentals continue to point lower. There was presumably some post holiday euphoria in Chicago, interestingly many of the buyers were last week’s sellers! Front month Jan ’15 soybeans pushed back to the 50 day moving average, wheat remains well below December highs whilst corn has clawed back around half of last week’s losses. Will the first Tuesday in 2015 display classic “Turnaround” tendencies?

Matif wheat bounced to close at seven month highs supported by a nine year low in the €uro and suggestions that last week’s Algerian tender saw in excess of half a million mt sold at a price believed to be at or very close to full replacement. Black Sea prices for Russian origin wheat were well supported with shorts prepared to pay up of January shipment in order to beat the February tariff deadline. There is also news that Ukraine has decided to halt VAT reimbursement, which when added to the severe cold forecast for the US all added support. One piece of good news lies in the reported level of EU/Black Sea snow cover which is shown on the attached graphics and appears significantly better than a year ago.

S American weather continues to attract discussion, as would be expected now that the US is done and dusted – all bar final counting. There is some dryness in Bahia (far NE Brazil) which accounts for around 4 million mt of soybean production. The remainder of Brazil and primary crop producing regions of Argentina have enjoyed near to above average rainfall and a lack of any real heat. The bottom line is that the crop has potential for record yield, and like the US crop now requires some “finishing” rain to allow it to mature. There will be a requirement for dry weather across N Brazil post 25 January to allow harvest to progress speedily.

It is reported that China is to hold an auction for some of its 5 million mt (???) reserve corn stocks, and there is an expectation that this may well encounter difficulties due to the age of the stock (2 – 3 years old) and the fact that it is stored outdoors! If demand for their stock is limited it will impact China’s issuance of import licences negatively limiting the volume of exports from the majors, US and Brazil.

It has already been an interesting start to the year.