- How things change! On this, the third day of Spring we wake up to blizzard conditions across much of northern UK and ten inches of snow with more to come in the next 24 hours. Southern regions, whilst not experiencing snowfall, are being hit with further torrential rainfall which will hit farmers who were starting to see soils drying out sufficiently to allow fieldwork. This unseasonal turn of events will further delay spring planting and potentially push harvest back to some degree. This has already been voiced as a concern from a pan-European perspective and at a time when predicted end of season stock levels are already stretched close to breaking point. Any increase in consumption as a consequence of an extended season will add to the looming problem.
- London and Paris wheat markets have seen some gains this week, reaching levels last seen over a month ago. Whilst following stronger CBOT levels, the fundamentals this side of the “pond” have assisted the uplift. Recent overhead resistance in May ’13 Paris wheat has been breached to the upside and should provide some degree of support going forward. Physical markets in Europe have seen some good support on a cash basis and premiums over futures have remained strong. Domestic demand in both the UK and Europe has been good, as has export demand, all adding to positive sentiment.
- In a more global context we heard earlier in the week that China was reportedly cancelling up to 2 million mt of soybeans on the pretext that shipping delays in Brazilian ports had placed sellers in a default position. This news was unsubstantiated and we subsequently picked up on reports of the Chinese government selling substantial stocks of state owned beans to allow crushing to continue in the face of shipping delays. Chinese crush margins remain strongly positive and it appears that meal demand too is buoyant. Consequently, our conclusions are that rumours have been planted to encourage lower prices thereby permitting purchases to be made at advantageous prices or switching of supplies back to the US. In addition China will, in due course, seek to replenish their stockpiles; presumably when cheaper and more abundant supplies are available.
- The Cypriot “bank raid” continues to rumble on with no resolve since erupting last weekend. Banks remain closed, ostensibly to prevent a run on cash, and debate continues back and forth as to whether smaller depositors will or won’t be taxed. Whilst Cyprus may not be the most significant player in the EU, the potential precedent and its impact on others is not being overlooked. Other countries and their depositors are, not unreasonably, nervous of their own position. The Eurozone crisis, which has slipped from headline news in recent weeks, has once again moved back into a prominent position.
- In conclusion, we see continued pressure on old crop grains, and maintain our view that gaps in cover should be few and far between. Protein (soybean meal) price does have the feeling that it is vulnerable to downside just as soon as S American supplies become freely available and port congestion issues subside – hopefully sooner rather than later. The USDA stocks and plantings reports, issued next week, may well trigger some old crop upside if our view on stocks is reflected in the numbers. Certainly it has felt as if CBOT markets have been trading with this in mind this week.