- As expected we have seen EU wheat values down today on the back of yesterday’s Chicago decline, and despite continued falls in soybean and meal values in Chicago the grains have found some degree of support – or “turnaround” in Tuesday trade. The grains found support in concerns over seeding delays caused by wet conditions even though these will assist wheat crops.
- Technically, we have a weak soybean chart with today’s close below yesterday’s low, no doubt many will be watching for follow through and further weakness. The rumour mill is churning and there are suggestions that China is about to recommence weekly soybean reserve auctions, starting with 3 million mt on 6 May (a month earlier than previously – presumably due to the nearby premiums) although many doubt the success given China’s current stock situation. Regardless, the news is not bullish.
- Widespread chatter over Chinese clampdown on those who use commodity imports for finance is growing. It appears that China is trying to slow, or halt, the use of import finance schemes that are financing property development by increasing up front requirement for letters of credit. This has translated into the recent difficulties we reported in the last ten days where importers were unable to open LC’s despite vessel arrivals, and has resulted in some defaults as well as further renegotiation on contracts. It has also been alleged that some I porter representatives have been “detained” for questioning over such commodity finance deals.
- The above is unlikely to provide a bullish import to soybean prices for now!
- Aside from China, we have today seen further cargoes of Brazilian soybeans and Argentine meal sold to the US for June / July. Prices now pencil into the US as a consequence of weakening cash basis following washouts, letter of credit difficulties and / or defaults. All in all, this is providing a point of relief to hard pressed US stocks and limiting price upside pressure.
- US weekly crop progress and conditions reporting is now in full swing, and the latest report shows winter wheat at 34% good/excellent, the same as last week and 1% behind last year’s 35%. Corresponding poor/very poor rating is 33%, an increase from 32% last week and unchanged year on year. As far as the winter wheat crop development is concerned, it was reported as 9% headed, an increase from 5% last week, and up from 7% last year but behind the five year average of 17%. Spring wheat crops are reported to be 10% planted, compared with 6% last week and 7% a year ago but behind the five year average of 19%. More importantly, from a headline grabbing perspective, corn is 6% planted, compared with 3% last week and 4% a year ago but behind the five year average of 14%. It must be borne in mind that the ability of the US farmer to plant corn has grown hugely, as evidenced last year – watch this space when the planting window really opens.
- The Australian government weather forecasters continue to push stronger on the growing probability of an El Niño weather pattern with July now being suggested as a likely commencement date. Six of the seven models used suggest a likely event. Dry Asia and wetter S America is a headline outlook, although the effects do extend into the US and it is suggested that cooler and more moist conditions offer trend or above trend output of row crops including corn and soybeans. Palm production in Indonesia is likely to be compromised if El Niño conditions prevail, potentially limiting oil availability and increasing soybean oil demand whilst increasing soybean meal availability (and thereby potentially pressuring prices).
- All in all, we have some interesting developments which are worth keeping an eye on.