- Early gains in CBOT grains have given way to lower levels in the last hour of trading. The soybean complex however has managed to hold onto its gains and it remains to be seen if this continues into the close.
- US weekly export sales data was supportive, particularly to corn and soybeans, over 98 million bu of soybeans were reportedly sold with 8.3 million slipping into the old crop (although many believe they will be shipped in new crop positions) and the remaining 90.1 million bu was definitely in new crop positions. The total of new crop soybean sales now stands at 541.1 million bu, well above last year’s pace. 56.3 million bu of corn was also sold, 11.5 million bu as old crop and 45 million bu as new. Wheat sales were 16.3 million bu, with crop year sales reaching 328 million bu, 27% (or 124 million bu) less than last year – competitive export pressure is ultimately showing!
- China has, at last, formally requested US DDG exports to be certified MIR 163 free, and this has again hit the price of cash DDG’s by as much as $15 at export terminals. The news amounts to a defacto embargo on US DDG’s as zero percent certification is not just highly unlikely, but virtually impossible by all accounts. The news is not only negative from a US DDG pricing perspective, but also from a soybean meal perspective – think alternate competing protein source.
- Reflecting upon the bounce in prices, particularly in soybeans, the main driver has been discussion on drier than desired weather across south west midwestern states. Seemingly subsoil moisture reserves are more than adequate but the short position held by funds has proved a little rich and we have seen short covering on the weather news. Clearly crops will require finishing rains if they are to maintain their current good/excellent ratings and there is no suggestion, currently, that this is any way unlikely.
- Of note over the last few days has been the increase in premium of the French milling wheat contract in the MATIF market when compared with its London feed cousin. Nov ’14 MATIF now stands at £15.82/mt premium to London (basis UK 18:00 exchange rate) which is around £5.00/mt more than has recently been the case. The cause of the rise is down to (particularly) French harvest quality, which we have referred to previously, and the impact which rain delays have had in downgrading much of the crop to feed rather than milling suitability. The impact upon milling prices is clearly evident from the MATIF market, but we also have to be mindful on the effect which will be felt, and seen, on feed grade prices once the market gets to Grips with the additional volumes that appear to now be inevitable.
- Despite the French quality woes, there is better news from Russia where wheat output forecasts continue to grow. An estimated 58 million mt is now being widely discussed and some daring souls prepared to even consider as much as 65 million mt (compared with last year’s 52.1 million mt) which potentially allows export volumes of 25 million mt (compared with last year’s 18.5 million mt) and would still leave an end stock of 6.7 million mt, which is a million mt above last year. Any advance on the 58 million mt would have to either be consumed domestically (unlikely in our view), exported (at what price – significantly lower than current levels?), or stored as additional end stocks. One way or another we do not see a story to fire up the bulls in this news!
- Added to the hove, there are talks of EU sanctions on Russian state banks in the wake of the shooting down of the Malaysian plane last week. The banks would, if such sanctions were invoked, would not be able to sell shares or bonds to EU investors and would limit their resources to government and/or domestic investors. This, in turn would limit their ability to finance the domestic economy, including farmers, who might just step up their sales pace and volumes in order to repay loans. In addition to a weaker Rouble this would see the advent of even cheaper Russian wheat. Whether or not this scenario plays out in the fullness of time remains to be seen, but there is a distinct possibility that it may, just may, happen.