- Midday comments:
- In wheat we saw short term support arising from ongoing quality concerns across Europe as markets tried to hold onto Friday’s gains but weaker soybeans and corn saw an undermining effect which was assisted by fund selling. The week started with a bounce, the question being, “is it of the dead cat variety” or not? Wheat posted gains in Europe after trading down to four year lows, marking technically oversold levels once again, and any short term recovery comes as little surprise. G+Harvest in France was reported to be 76% complete at 28 July compared with 44% the previous week.
- Corn markets are anticipating a slight downgrade in weekly crop condition, maybe 1% or 2%, and short covering is assisting prices slightly at the start of the week. The wetter weather forecast remained in place over the weekend and has seen additional precipitation added in key growing areas.However, some suggestions that parts of the north and east could miss out have triggered some buying. If the rainfall forecasts are fulfilled, it could well ensure that many corn crops are “made” this week.
- Analysts ar rapidly increasing their corn yield estimates, Linn Group issuing 172.8 bu/acre which would give an output of 14.518 billion bu; Doane Advisory Service released 172.3 bu/acre and 14.4 blllion bu. Using an average of the two in the USDA’s latest SnD leaves carryout at 2.3 billion bu, and it was 2007 since we sat saw in excess of 2 billion bu carryout! Suggestions that subsidised transport in Brazil will be granted to facilitate and grow exports will not be seen as bullish or friendly to US growers and exporters.
- Soybean markets saw contract lows on Sunday night although the weather forecast triggered something of a recovery as short covering gathered momentum. Regardless of the here and now, the crop has seen almost ideal weather this summer and if forecasts prove correct in the first half of August we can not help but believe prices are currently full value if not fully overvalued! Crop condition reports from on the ground in Illinois are showing some of the best crops on record. Illinois and Iowa are the two top producing soybean states and the apparent lack of poor crop stands suggests that any significant downgrade is unlikely at this time.
- An eventual yield of 46.5 bu/acre, which is “only” just under 3% above the current USDA figure, would suggest an end stock of 526 million bu and stock/use ratio of some 14.8%. These figures can only be described as “very bearish” given the potential for greater than 3% yield improvement , particularly if August rains materialise.
- The potential for Brazil to plant more soybeans, at the expense of corn acres, is also a bearish factor. Whether this actually transpires or not, as growers may choose the fallow option, remain to be seen. Additional acres in S America will not be viewed as bullish under any circumstance.
- The recent upturn in soybean prices has undoubtedly assisted in correcting the oversold situation but the market remains oversold. Despite the net speculative short position we are still staring at a world awash with oilseeds, including soybeans, and that is before we factor in higher yield potential. We will leave it to you to work it out!!!
- Evening update:
- Brazil’s AgRural has estimated the 2014/15 soybean area at 31 million ha, an increase of almost 5% year on year. The 2014/15 crop is estimated at 94 million mt, an increase from 21013/14’s 85.6 million mt and well above the USDA’s 91 million mt estimate.
- In Russia, IKAR have estimated the wheat cep at 58.5 million mt, a 1 million mt increase from their last figure and a six year high.
- Stratégie Grains have raised their EU rapeseed output forecast to 22.9 million mt, up 400,000 mt month on month, and an improvement from 21.1 million mt year on year.
- European milling wheat premiums jumped again even as MATIF gained €1.50 ahead of Wednesday’s key meeting on deliverable specifications. Further rainfall forecasts and weekend rains have left the trade somewhat paralysed and Black Sea sellers in deferred positions reluctant to jump in. Ukraine’s yield is running 18% above last year and Russia is 20% up, both being underestimated by the USDA to a significant extent.
- The European weather forecast looks bad from a wheat perspective with ten days of alternating rain and sun, which will defer the harvest and potentially increase sprouted grains. The UK forecast has changed to much wetter conditions, and with just 10% done growers must be getting frustrated. However, EU corn crops are looking about as good as could be expected, and potential output can only be described as huge.