- The run up to January month end saw a degree of profit taking and some downward momentum in prices although it is probably fair to say that price charts look more friendly right now than they have done for some considerable time.
- The debate as to the most newsworthy item today falls between two stools; S American weather and Russian stocks. The conditions in Argentina are less than favourable with too much heat and too little precipitation, the forecast continues in much the same vein. The dominant high-pressure systems responsible continue to follow one after another and push northwards into S Brazil leaving it dry also. These dry conditions coupled with increased crop moisture demand, as the crops grow, conspire together to add to stress pressures.
- There has been discussion this week of the Argentine soybean crop failing to reach the 50 million mt mark, and corn coming in below 24 million mt. However, these figures are by no means a done deal right now. Private forecaster, Lanworth, this week reduced their Argentine estimates on both soybeans and corn to 53.1 and 25.6 million mt respectively. Their estimates for Brazilian output were increased from a month ago to 80.9 million mt for soybeans and 75.8 million mt for corn.
- Harvest is getting under way in the key Brazilian soybean growing state of Matto Grosso, albeit with interruptions for rain, and early reports are suggesting yields are lower than previously anticipated. Once again it is probably too early to draw conclusions bearing in mind the recent experience of the US soybean harvest, which showed an outturn above that which was anticipated.
- The Russian debacle continues with the “on-again, off-again” situation of the 5% grain import duty. Discussions this week have included a possible “reduction” in duty rather than a total withdrawal, and almost in the same breath total withdrawal has been reported as “possible”. It seems that either way changes will be made, and fairly soon. Our suggestion last week that there is a requirement for 2 million mt of wheat to be imported in order to reach the next harvest has some added credibility as close to half a million mt has been imported to December so far, and there seems to be an acceptance that in excess of 1.2 million mt will be required.
- Brussels granted further wheat export licences amounting to 480,000 mt this week, bringing the season total to 12.527 million mt, over 2.5 million mt (25.8%) ahead of the same time last year. The figures reported last week showed exports to be 23.4% ahead; seemingly EU export pace is increasing rather than slowing down to preserve much needed end of season stocks!
- Without wishing to be over repetitious, we struggle in the light of limited or no Black Sea stocks, Russia (a traditional exporter) needing to import, Argentine wheat problems, the pace of EU exports leaving something less that absolutely necessary stocks, added to which fund net short positions in Chicago wheat (the world’s cheapest) could well result in a short covering rally – we would not wish to have any risk to potential explosive upside prices.
- On the other hand (and readers should be grateful we only have two hands!), if the US plants the much discussed 99 million plus acres of corn and trend line yields are achieved, which is by far a foregone conclusion in view of the on-going drought conditions, there will be undoubted downward pressure not only on corn prices but also wheat prices. Timing of such pressure, if it materialises, will be at or around the US corn harvest period.