A week on from the much discussed Ukrainian wheat export ban it is now very much yesterday’s news although there has been little, if any, fresh news to supersede it. The ramifications of the ban are beginning to hit home and it would appear that there are a number of buyers, Egypt included, who will suffer from “force majeure” claims, as Ukraine exporters will be unable to fulfil contracts. The EU has condemned the action with the EU agriculture minister saying, “It will add unnecessary tension to international agricultural markets.” He further added that, “Those that will suffer most will be the world’s poorest.”
Past exports bans, such as that by Russia in 2010 after their devastating drought, have a history of pushing prices higher as buyers scramble to get cover in markets with restricted supplies. The current action by Ukraine could not come at a worse time when considered from the perspective of a tight global supply situation.
However, markets this week have not taken a dramatic turn to the upside as the ban was widely expected in one form or another, and as such, was already pretty much priced in.
In the US the weather continues to bring its forces to bear on crops as around half the Plains would seem about to enter the winter without being fully established as a result of dry conditions and consequently vulnerable to winterkill. Light rain and some snow is reaching some regions but the summer drought has still left lingering effects which may well be felt into next season. The long range weather outlook for the Plains issued by the National Weather Service predicts dry conditions to not only persist but to intensify and spread through to February next year.
At home in the UK, winter wheat seeding has been slowed by rain and wet conditions and the weather is threatening to cut acres. Unless conditions change rapidly there may well be a switch in acres to spring barley and a consequent reduction in wheat output for the 2013 harvest. Plantings in France are delayed but not to a significant level so far whilst German progress appears to be good.
Australian wheat growing conditions continue to deteriorate as cumulative rainfall through October in W Australia, New S Wales and Queensland sits at 0 to 40% of average. Talk of a 20 million mt crop persists, although exports are still envisaged in the region of 17 million mt thanks, in large part, to residual stock, which will be consumed to make up the shortfall.
In summary, the global wheat picture does not exude a healthy, rosy glow right now. The EU, Black Sea region, Australia and Argentina have all produced wheat under less than ideal conditions this season and this is clearly impacting upon available supplies amid strong demand fundamentals. The outlook for prices has to be bullish with recommendations staying the same; buy the dips when they appear and keep cover levels high.
The soybean market has gained ground over the week although we have seen some pressure on front month contracts due to fund re-balancing and rolling ahead of Nov ’12 contract expiry. Weekly soybean export sales were at the lower end of expectation but bring commitments for the season to a massive 25 million mt, which compares with 18.3 million mt at the same time last year.
Attention is now focussing on the November USDA report which is widely expected to show a further improvement in yield, although the export pace and voracious appetite of buyers, China in particular, will no doubt swallow any additional production without drawing breath. Typically, only small revisions are done with the November report. Instead, any significant changes to supply are dealt with on the January Crop Production Annual Report as the USDA has more data, including the Dec 1 Grain Stocks survey to reference.
The rise in values seen by mid-week, which amounts to some 85 cents above the previous week’s low, has triggered some profit taking ahead of the weekend. However, better levels have not managed to elicit any significant farm selling and cash basis remains firmer with both processor and Gulf bids higher than last week.
To wrap up, the fundamentals in the soybean market point to continued firm prices. In the UK we see the first break in prices coming in the May/Oct’13 position with any origin Hi-Pro soybean meal close to a £70/mt discount to the Nov ‘12/Apr ’13 position. On paper this looks like a good discount and obviously reflects the large anticipated S American crop which has some planting issues right now (wet in the south and dry in the north). Given our view on US supplies in a tight global market, the May/Oct price may well be tempting and an opportunity to “put a toe in the water” to start taking some cover further forward.