- Today has seen a rain triggered rally in Chicago with fresh fund interest apparent, particularly in corn and soybeans as some localised flooding is reported in parts of Iowa and Minnesota. Whilst the market is reacting to the upside it must be borne in mind that the additional moisture is adding to output rather than detracting from it in other parts of the US. Reports suggest that flooding is localised and not threatening national output, unless an extended pattern of rain continues through to mid-July. Our overall view is that the current rally is an opportunity to make sales rather than take cover, and we feel that it will have a short shelf life. Aside from the reported flooding, it appears that weather conditions are close to ideal – hence our market view!
- US export sales data showed wheat sales some 12% down on last year and corn sales to be slowing amid competition from S America and Ukraine. Global consumers appear to be comfortable with cover levels right now and look to be awaiting lower prices before adding further coverage.
- News that Chinese corn stocks are closer to 150 million mt than 100 million mt is emerging. The issue of how to dispose of such an increased volume amid another potentially large harvest, in excess of 220 million mt, is rearing its head large and loud. A number of suggestions have been put forward including China returning to the world corn export market – excellent timing!
- Brussels has granted weekly wheat export licences amounting to 363,485 mt bringing the season total to 29.127 million mt. This is 8.6 million mt (41.9%) ahead of last year.
- The upcoming USDA acreage and stocks report scheduled for 30 June has, in past years, provided extreme volatility in its wake. With new crop Dec ’14 corn already testing its January low we have looked at what the report could potentially show us. Given the weather, it is possible that acres will provide a bearish input and also that stock levels may be higher than originally estimated, due to lower feeding levels in the Mar/May period, adding to that tone. Old crop soybeans, on the other hand, continue to be tight and supportive to new crop pricing remaining well above January low prices. Weather conditions remain (generally) favourable to both crops as evidenced by crop condition reports, which show some of the best ratings in many years. The current rains (flooding) should be taken with a “pinch of salt” bearing in mind thae old adage that “rain makes grain”.
- If weather conditions remain favourable, as suggested by the forecasters, we could well be talking of 46 bu/acre plus soybean yields (1.8% above the USDA’s latest) and many believe that acres will be a minimum 1 million more than the USDA and possibly up to 3 million greater. If, and “if” is a very big word, acres are 2 million more and yield hits 46 bu/acre we will be talking US end stocks of 490 million bu, a massive jump from this year’s 125 million. Stocks/use ratios would jump from this years low 3.7% to a healthy 14.2%. Our preferred view remains looking for Nov ’14 soybeans to test $10.00/bu provided weather remains favourable.
- In corn we can envisage a similar situation; producers in the far northwest may have missed out on planting but many others had ample opportunity to seed their crops and indeed exceed their initial intentions. If yield reaches 168 bu/acre, and many are talking even higher, and acres grow by 1 million we could be looking at end stocks hitting 2.116 million bu with stocks/use ratios jumping to 15.8% from this year’s 8.4%. Feeding of corn in the current year could be lower than anticipated due to reduced pig numbers following the impact of the PED virus. On the other hand, current corn prices are relatively cheap and with crude oil prices rising on Middle East tensions ethanol production is potentially about to become very profitable and could well trigger higher production and corn usage.
- As always we will have to wait and see what the report brings, but we felt it worthwhile to discuss some of the possibilities which may emerge.