Sometimes it is difficult to pull significant events out of what has happened over a period, and this is one of those weeks. A number of relevant and newsworthy issues have come to the surface, BUT none of them seem to hit us between the eyes at terminal velocity!

UK farmers who have been pressured by excessive rainfall received a period of respite in a cold snap which allowed a brief period in which it was possible to get machinery onto the land – and combines were seen rolling once again, in December, gathering a very late harvest. However, the weather window has not added significantly to the autumn wheat sowings, which remain behind expectations at around 80% leaving the very real prospect of another sub 14 million mt harvest in the UK next year.

In S America reports of barley harvests bring little to raise a smile, the early reported yields are running nearly 40% behind expectation in northern regions which, if representative of the country as a whole, could take up to two million mt off the national crop and pressure already tight exportable volumes As with wheat the outlook for the crop is already blighted by the on-going wet weather and not only yield reductions are hitting the headlines but quality fears are already well reported. The key outcome remains to drive buyers to alternative origins to source material but, as we have previously reported, many traditional sources are already tight on stocks.

As if this was not bad enough, we picked up on reports that some Argentine wheat exports are blocked due to a “lack of export permits”. The AgMin have denied that there is any export suspension, but we did hear that the Argentine government “may” be about to apply some form of pro-rata to existing export licences as they are struggling to find the necessary volumes of wheat. We stress that this is, as yet, unconfirmed, however the wet conditions experienced over recent weeks and months does give a degree of credibility to the rumour.

Further north, in the USA it has been estimated that the winter wheat abandonment rate may reach as much as 25% as continued warm weather and lack of rainfall continue to stress the crop. Clearly the decision to plough up the crop and re-seed will wait until spring but the crop outlook has continued to decline beyond the last released USDA condition report as temperatures have remained higher than that required to allow the crop to enter winter dormancy; thus prolonging the period of drought induced stress. This level of abandonment has only been seen twice in the last 50 or 60 years, 1988/9 and 2001/2. The decision on what to plant instead will only be made when conditions in the spring are known.

CBOT prices, despite the potentially bullish news, remain stuck in a broad range downtrend that has plagued the market since late July price peak. Even the news last weekend that Egypt, in their first tender since October, had awarded 280,000 mt (out of a total 400,000 mt shopping spree) to the US failed to give the market the shot in the arm it is looking for. The next tender, the date of which is unknown, may well reinforce the message that US wheat is now competitive in the global arena, and highlight that the rest of the world is struggling with tight supplies.

Thursday’s US export figures contained one figure to grab attention, and that was the soybean export number at 1.14 million mt which was above the estimated 500-700,000 mt. The total soybean export commitments this season now stand at 28.4 million mt, which is nearly 6.4 million mt (or 29%) ahead of the position a year ago. Little wonder that we have remained friendly to the market, despite the significant price drop since early September. From a technical perspective we appear to be close to testing the $15/bu mark as we approach the week-end, a break through this level could well see the bulls take charge once again although we don’t believe that the funds have a great appetite for significant participation this side of New Year as they appear to be protecting profits and performance levels achieved in 2012. Maybe the dawn of 2013 will be the “trigger” for fresh upside momentum.

To conclude, in the “unremarkable news week”, we remain friendly to the fundamentals of the global soy complex and grains markets and urge consumers to remain well covered for the current season.