- Midday comments:
- Early on saw little fresh news and the feeling that the forthcoming long holiday weekend in the US (Labor Day) would see some “risk off” as players don’t want exposure over any extended period. That said, reports of the best crops in twenty years, ideas that this week’s rains will boost crops still further and added to that ideas that both Brazil and Argentina will see a surge in 2015 soybean acres. The elevated corn/bean ratio also has the potential to see elevated US soybean plantings next season with 86 million being widely discussed today (vs. 84.8 million this year). Increased acres in the US next season on top of a big opening stock (big end stock this season) the end stock next season does not bear thinking about, it would be absolutely massive – what price soybeans and other oilseeds then?
- In the absence of any real bullish news as far as soybeans are concerned, the market is looking for a story, and lo and behold, Sudden Death Syndrome (SDS) has appeared on the scene although it is not really impacting prices – right now.
- In corn we saw Taiwan issue a tender for 60,000 mt from Brazil or S Africa, the US is excluded – which is bearish. Good weather, big potential supply pressure and suggestions that US exports may be below those of 2013/14 are all there to pressure corn prices lower. There are potentially supportive issues around, although it feels as if the bulls are clutching at straws when raising them. However, for the sake of fairness we will give them airtime; demand increases (assuming feed wheat prices remain firm) and a reduction in harvested acres in S America, Ukraine and China to name but two.That said, the big UDS harvest and stagnant demand seems to be prevailing right now.
- In wheat, Taiwan rejected all US offers in their tender stating that prices were, “too high”. Added to further Black Sea sales to Egypt yesterday the news has been construed as longer term negative from a price perspective. Having said that we have seen some technical support at the lower end of yesterday’s price range. The prospect of plentiful supply and weakness in other grains as well as lack of interest in expensive US wheat are all viewed as negative for the market.
- Evening update:
- The Russian Grain Union put forward their estimate of the 2014/15 grain crop, usurping the AgMin’s 100 million mt estimate by forecasting output at 104 million mt. Their view of exports was also higher than the AgMin at 30 million mt. Suggestions that the 2008/9 record crop of 108 million mt could be broken this year if weather conditions remain favourable are also being widely discussed. Export progress in August also looks to be strong with 4 million mt looking likely and well above July’s 3 million mt figure.
- CBOT soybeans and corn closed slightly lower with wheat ending in the green, lack of frost forecasts is favouring corn whilst early strength in the soy complex, mostly attributed to Sep ’14 meal, has failed. Shorts in the Sep ’14 meal contract are being squeezed (hard) ahead of first notice day – they clearly took no heed of my comments regarding the August contract squeeze!
- Putin and Petro Poroshenko met and whilst no solution was reached, it feels like there is a roadmap for a peaceful solution to the difficulties, which will pave the way for the removal of most of, if not all, the risk premium that is currently built into the grains markets.
- Paris wheat, on a £Stg adjusted basis, has reached premiums of £18 plus/mt over the London feed contract, and it is almost comical to read that French traders are “feeling relieved to have missed the recent Egyptian business by only $5, and the larger French crop would leave France in an advantageous position to increase feed wheat exports.” What planet are they on?
- Further issues remain in the French market which have been brought to our attention today:
- Quote: 3.1.3-16 The buying Clearing Member must free the selling Clearing Member’s storage capacity before the end of the delivery month. Unquote
- This innocuous phrase, hidden amongst 30 pages of contractual jargon on Matif wheat futures, is stunning (we admit with regret that prior to today, we were unaware of its existence). In plain terms, if you take delivery of Nov futures and do not remove the wheat by Nov 30, you are in default and the ‘seller’ who delivered the wheat can resell it against you in the cash market! The consequences are as follows: 1) There is no such thing as full carry as there is no way to take delivery of one contractual month and re-deliver against the next (or subsequent) positions. 2) The delivery silos (today there are two, but for the last 10 years it has been a monopoly), can corner the delivery market in both directions. Either a) they simply get long up to the goolies and refuse (without need for justification) any physical delivery (which has been the case on most delivery months over the past 10 years), thereby compelling shorts to cover (from them!) and creating huge inverses or b) (a scenario which is much more likely this year), sell short the total silo capacity and deliver. The longs will be screwed with just 2 weeks to move out wheat which this year is essentially feed wheat, and which on the cash markets is currently trading €30 below Matif. Their only solution will be to sell back to the silos – at whatever price the silo dictates. Things have gone quiet since the furore back in July over Matif contract/delivery specs, but with an open interest on Nov of 163,000 contracts, this is not over. The Matif contract is a disaster from every standpoint, and it is time the Euronext/Rouen Mafia was broken. But don’t call us, call the CME.
- Rant over!