- Midday comments:
- Yesterday’s downside break-out in CBOT has left the market vulnerable to further declines with $5.23 the next objective, followed by $5.15 basis Dec ’14. The last three months of price consolidation add credence to the “next leg down” theory. The large volume offers (775,000 mt) in the Egyptian tender plus (conflicting) reports on the imminent Ukrainian ceasefire have left the bulls looking for a place to hide. Given the recent history it would be fair to suggest any resumption in hostilities could leave the market vulnerable to a big upward move, particularly as if seems that funds are starting to rebuild their shorts on a daily basis. Australian weather conditions are trending more favourable into mid-month with showers forecast in southeast and southwest areas. News from China that SinoGrain, the storage company, have stockpiled three times as much wheat this year as they did last year will doubtless lower import expectations – conversely reducing exports from exporting nations. The suggestion that China’s wheat imports will only reach around 57% of last year’s at 3 million mt will not be seen as bullish.
- Corn dropped to four year lows yesterday as crop condition improved, early harvests prove to be better than expected and a rash of private forecasters keep 170 plus bu/acre expectations to the fore. Weaker cash basis in the US Gulf, Ukraine and S America all conspire to keep a lid on prices and there are even suggestions that EU feed wheat now calculates into SE Asia. The likely knock-on effect will be to keep downward pressure on S American plantings, particularly as current corn price levels are below the cost of production in much of Argentina.
- Improved soybean crop conditions and sharply improved yield expectations helped the market lower yesterday although a close eye should be kept on short-term cool weather in some regions. If the next week escapes a freeze (which we believe will be the case) warmer conditions are forecast to return in the second half of the month. Freeze risk will likely trigger fund short covering and a push higher in prices. Early downside targets are $10.08 with potential to see a break as low as $9.77, or lower, as harvest ramps up.
- Midday comments:
- The European Central Bank today reduced its benchmark interest rate to 0.05% in an effort to kick-start flagging Eurozone economy whilst the UK’s Bank of England left its record low rate unchanged for another month. The US$ also surged vs. € across the afternoon trading period.
- The day has developed into another down day with lower prices pretty much all round. There is news that end users are attempting to switch soybean meal contracts from US origin to S America, specifically Argentina, as exporters reduce their FOB basis in efforts to attract new crop sales. Exiting the US leg will doubtless be expensive but US 2014/15 sales pace looks set to reduce dramatically as Argentina becomes ever more aggressive and competitive.
- Paris wheat closed mixed and as much as €2 off the lows, and with the € dropping over 200 points to 14 month lows the market move is hardly viewed as stellar! Brussels granted wheat export licences amounting to 864,378 mt this week bringing the season to 4.854 million mt, which is just ahead of last year (3.6% or 168,934 mt).
- With Russian cash wheat carry costs looking at risk we view this as a potential trigger for another leg down in cash prices – unless, of course, the Russian Government moves on intervention. In corn, the break to new lows makes technical support difficult to establish. As the US looks to be expensive in export terms and with increased confidence that yield will be 170 bu/acre plus it is getting more difficult to see what can stop a considerable fall in US price levels – excepting a geopolitical catastrophe or climatic disaster! In soybeans, history shows that in high yielding years (and this looks likely this year) soybeans (and corn) tend to make their price lows in October/November rather than the more usual September. The markets, as they currently stand, clearly look as if they have more downside yet.