WEEKLY SUMMARY:

• We continue last week’s theme of benign weather conditions across key global cropping regions, which has been reflected in prices that have declined to the point of spectacular in nearby soybeans and soybean meal. The Aug ’13 soybean contract has declined from Monday’s high of just over $15.25/bu to the low (so far on Friday) of $13.30/bu. Aug ’13 Soybean meal has also declined similarly, from a high on Tuesday of close to $515/ton to below $430/ton having traded at the daily limit down three days in a row.

• One key explanation for such dramatic falls lies in recent consumer purchasing giving them cover through to new crop supplies becoming available, or very close to that time. Consequently we have seen long holders looking for buyers and, as we all know, a market with sellers and no buyers equals a falling market. This has been compounded by the big inverse in the market with the prospect of bountiful new crop supplies becoming available and the inevitable devaluation of old crop stocks once they have to compete with new crop supplies.

• An alternative suggestion combines the expiry of August options (today), which has pressured long holders and triggered selling, creating the opportunity consumers have been awaiting. We are of the feeling that, despite this opportunistic cover being taken, there are still gaps that will require filling. As we all know, there is always a rush to own the first of any new crop and should this be delayed (which is possible in view of the current cooler weather) we could well see another push to the upside in prices as buyers step in once again. In our opinion the old crop market has not quite yet “rolled over and died”, there is a strong possibility that we could see another demand driven spike up in old crop prices. This has, in turn, the ability to influence new crop to some extent.

• In addition we have seen weather conditions and forecasts into the first half of August looking favourable for corn pollination and development as well as being non-threatening, at this time, for soybean pod setting and filling. The improved crop outlook was reflected in the US Commodity Weather Group (CWG) forecasting the 2013 US corn yield at 159.5 bu/acre, which is above the USDA’s most recent estimate of 156.5 bu/acre, and significantly above last season’s drought impacted 123.4 bu/acre. Clearly the weather will continue to have to play its part in the development of the crop, and late-planted regions could be susceptible to damage if early frosts are a feature in late season weather. However, it is far too soon to speculate upon such downbeat issues at a time when things are looking positive.

•  Whilst falls in nearby soybeans and soybean meal have been spectacular, the new crop positions haver also declined but in a more controlled manner. Corn and wheat markets have also seen losses, but once again in a more ordered fashion. The wheat market has seen a good volume of international trade interest with Egypt, once again, buying Black sea origin wheat (Romania 120,000mt, Russia and Ukraine 60,000 mt each) in their third purchase of the month bringing their total to 720,000mt in July alone. Trade estimates for their annual imports stands at around 9 million mt, which contrasts with reports not many weeks ago that stocks were “adequate” and import requirements would be “minimal”. Earlier in the week we heard of reports that Egypt was hoping to negotiate deferred payment terms with Russian suppliers. Our reaction was typical of many, that being, our own personal history in the commercial trade would suggest that a request from a buyer with a questionable financial status for extended payment terms would likely receive a response unprintable in this report!

• In addition to Egypt’s presence in the market we have also seen deals done this week by Iraq, Algeria, Iran, Japan and South Korea. These deals added to the Egyptian tonnage add up to over 900,000 mt. With buying interest of this magnitude in an ostensibly “bearish” market together with on-going speculation over China’s real requirement for wheat imports, it is little wonder we see prices reluctant to “fall out of bed”.

• One further potential barrier to significant declines in wheat prices right now is the question mark over “quality” of the ongoing harvest. Early reports from southern and eastern Europe as well as Russia are highlighting lower than expected protein levels. Whilst it is too early to draw firm conclusions from initial samples, there is enough of a question to ensure protein premium levels remain high. A watchful eye needs to be kept on quality as harvest progresses northwards in coming weeks.

• Brussels this week granted wheat export licences totalling 486,296 mt, which brings the early season total to 1.128 million mt nearly 400,000 mt ahead of this time last year.

• In conclusion, we continue to look for additional downward pressure on prices in coming weeks, particularly as northern hemisphere harvests gather momentum and crop availability improves.