- Today has been a “down” day with markets both side of the pond shedding value (soybean meal as the exception actually gained) as soybean oil and wheat led the way pushing to new (recent) lows. End users have been scale down buyers and picking, what they believe to be, value. Funds have been exiting from long soybean oil/short soybean meal spreads, hence the oil decline and meal gains today. There is also an expectation that US weekly sales data will show large US soybean meal exports as crushers are attempting to lock in positive crush margins amid slowing domestic demand, consequently trying to attract export business.
- US ethanol production data was in line with expectation and left corn grind also in line, maybe a little bullish as producers are still not cutting back production. However, US ethanol stocks rose 1.3% to 874 million gallons, as high as we have seen in recent years, and this is placing a strain on storage capacity. This will doubtless be a recurring theme in coming weeks and months. Negative US ethanol production margins have, at some time, to pressure production and relieve what will otherwise become historic stocks by early springtime.
- In Brazil we continue to hear of early yields reaching record highs, some 5-7% above last year and the 2011 record. It is only in the dry areas of Bahia and Minas Gerias where limited harvesting has taken place that losses will be unavoidable. A Brazilian crop of around 95 million mt still looks to be feasible.
- The decline in wheat values was clearly evident as funds continued to sell and French sellers attempted to offload stocks of old crop. There still appears to be demand from Asia for EU feed grade wheat and as stocks in France appear to now be of lower grade grain the reducing wheat/corn price spread is likely to attract greater prominence in feed rations. Consequently, this suggests to us that the downside in wheat has limits – assuming corn does not outpace wheat in a rush to lower levels. However, and there is always another side to the argument, EU new crop weather looks benign and with more snow forecast in the FSU with temperatures above normal there is no reason to suggest combined EU/FSU 2015/16 output should not be very similar to this year. That would lift end stocks to 50 million mt vs. the 25 million mt which is where we began the current year. Under these circumstances wheat looks set to vie with soybeans in the race lower!