- For the first time in many a month we have started to turn somewhat friendly towards the wheat market! Whilst it may be frustrating to suggest this when prices (basis Nov ’14 futures) are some £12.00/mt above the lows, it should be borne in mind that tonight’s close is still more than £45.00/mt below the high levels seen earlier in the year.
- Why the change of heart? Why now? Why did we not see this two weeks ago? So many questions and all perfectly valid; taking the the last questions first, we try and look for lows (naturally) and these can only ever be seen after the market has bottomed and a pattern of reversal has been established. The change of heart was been triggered initially by yesterday’s Egyptian purchase at an average price some $10/mt higher than previously paid. Added to that we have a number of other statistics this side of the Atlantic that suggest a change of trend. Ukraine appear to have shipped/sold their 5 million mt exportable surplus. As we reported earlier in the week, Kazakstan’s exportable surplus seems destined to remain in the fields until next spring, they even appear to be importers in the short term (from Russia). Russian prices, despite earlier thoughts, appear competitive (for now) and the overall picture has a somewhat different feel to it today – even compared with yesterday morning!
- CBOT corn and soy complex markets closed lower with wheat bucking the trend and ending in positive territory, although off the session highs. Cash hedging by farmers has been evident as prices have risen and they ramp up corn and soybean sales, and this has weighed on prices as the day progressed. News that China returned to the US for Dec ’14-Feb ’15 soybeans on the back of slow S American soybean seeding provided some early market price support. Rumour has it that some US soybean meal sales have been switched to Argentina, and more are in the pipeline. Export space will be limited in Argentina but the commercial raison d’être is pretty obvious with both Argentine and Brazilian meal prices below US levels by around $26-$29/mt and the world is heading away from US origination right now.
- Late news tonight suggests that Russian wheat is about to enter winter dormancy in its worst condition in five years. Given the size of the country this is a bold suggestion and most regions have seen normal to slightly below normal precipitation since Sep 1st. However, there are some dry areas in SE Russia and E Ukraine where precipitation totals have only been 20-50% of normal. History tells us that the level of snow cover and spring weather truly determines Russian wheat yield but in the light of our earlier comments and potential change of heart this could become a particularly relevant issue going forward.
- S American weather patters are, at last, changing with N and C Brazil looking set to receive abundant rains in the next fortnight. Some 2-5” is forecast to fall across soybean growing areas which have been struggling with dry/hot conditions since early October, and this is likely to significantly help in restoring lost soil moisture. Soybean seeding ahead of the forecast rains is reported to be progressing as farmer confidence in the forecast grows. S Brazil and Argentina are forecast to see rains in the middle of next week which, if it arrives, will maintain soil moisture at “adequate” levels.
- We maintain the world has an abundance of grain and oilseeds, a bounce off the early October lows has occurred with soybean meal leading the way as pipeline filling has been slower that desired. Funds that have been heavily short in both wheat and soy have exited positions, and (basis estimated daily fund transactions) it seems funds could be close to square on soybeans right now. Consumers appear reluctant to chase the rally, suggesting when fund buying slows/stops a resumption of the supply driven bear market will return. Improving S American weather (dramatically?) and a strengthening US$ into the year end suggests that and sustained bullish trend is unlikely.