- We reported a week or two ago that the markets were all about the weather; how prophetic that has proved to be! In the UK we took the two day opportunity to parade in shorts and T-shirts and enjoy our summer, if you missed it we are now back to rainstorms, gale force winds and temperatures well below normal. Happily, we are not alone in our abnormal conditions; the US and Canada continue to struggle with cold and wet conditions which are delaying spring plantings and hampering winter wheat progress.
- Latest USDA crop condition figures show the proportion of winter wheat rated poor/very poor to have risen to 39% from 35% a week ago whilst the good /excellent crop has fallen one point to 32%. Crop progress is also slow with only 20% headed (compared to 14% a week ago), which is behind the five-year average of 39% and 64% last year.
- Spring wheat fares no better with 23% planted, which is an improvement week on week, but behind the five year average of 50% and last year’s 82%. Unsurprisingly the emerged crop only stands at 5%, which compares with last year’s 43% and a five-year figure of 19%.
- Canada has also struggled with plantings as late snow cover, lingering cold and wet soils continue to delay fieldwork. Elsewhere we see on-going dry patterns emerging in Southern Russia and Ukraine where the continental climatic pattern moves into its summer season with rapidly rising temperatures, which threaten to further dry out topsoils and leave crops open to moisture and heat stress. As we have previously reported, the region is fast approaching a time when rainfall is becoming a necessity if crop potential is to be fully reached. Europe, as a whole, continues to receive cooler and wetter weather but wheat crops appear to be progressing in reasonable condition.
- It will be interesting to view the USDA’s figures issued today (as European markets are closing) where, no doubt, most will be focussing on corn and soybean numbers rather than wheat.
- Moving away from wheat, possibly the most notable news this week has been that at least three cargoes (reported to each be 30,000 mt) have been traded to the US from Brazil and Paraguay. The reports carry a strong degree of credibility insofar as load ports and vessels have been nominated. This volume (90,000 mt or 3.3 million bu) will hardly scratch the surface of the addition 70 million bu that we estimate is required to be found to meet the minimum “pipeline” requirements of the US soybean balance sheet. Supplies are tight following last year’s drought conditions coupled with strong export trade, particularly to China, and a strong domestic crush leaving end of season stocks in a historically tight position.
- The tightness is soybeans is clearly illustrated by cash basis levels which continue to be strong; additionally the front month CBOT contract (May ’13) stands at a premium of over $0.80/bu to July ’13. The May ’13 contract is also trading at a very strong premium in excess of $2.70/bu over new crop Nov ’13 indicating continued buying support for the old crop positions. Clearly consumption interest has not yet been curtailed by prices!
- Figures released this week by Brazil’s CONAB, which lowered forecast soybean output by 400,000 mt to 81.5 million mt (month on month) have done little, if anything, to markets. Supplies appear to be flowing from Brazilian ports as the season moves into top gear and it would seem fair to assume that pressure will now come off the US from an export perspective.
- In conclusion, whilst there may be continued tightness in old crop supplies there need to be buyers to sustain high and higher prices. As buyers keep their cards close to their chest and run stocks as tight as practical, given the large new crop discounts, we would appear to be facing limited price upside unless mother nature springs a surprise. From a new crop perspective it appears that large acreages and (until proven otherwise) trend line yields will provide some relief to globally tight stock positions. Under these circumstances price rallies would look likely to be capped by selling pressure. One caveat has to be made, and that is the current net fund position; funds (as at 30 April) had relatively small net long positions in soybeans and were net short corn as well as wheat. Should they decide to change their stance and scramble to cover short positions we could face sharp upward price moves.