- Markets have been pretty dull ahead of next week’s USDA report and trade has been mixed as grains trade either side of unchanged and soybeans stick stubbornly in positive territory. One of the issues leading to indecision is the wide variation in estimates of what the report will contain, hence our previous comments pertaining to “expect fireworks”.
- As we approach not only month end but also quarter end we are witnessing something of an exodus of fund money from the Ag Commodity sector. The bearish new crop fundamentals are sufficient to discourage fund managers away from long positions and the fast approach of July trading month first notice day hastens their exit from front month positions. August is such a thinly traded contract that funds are unlikely to use it in any significant volume, therefore we are close to seeing old crop fund activity finally come to an end – RIP! The trigger for new fund activity is likely to be a significant weather event, which does not (currently) look likely, so the foreseeable future looks as if we will endure a “grind lower” type of trading.
- As mentioned previously we would expect crop condition ratings to show an upturn in next week’s data release as a consequence of generally favourable conditions across the Midwest, N Plains, which should, when added to fund activity, see a limit to price upsides.
- The one downside has been cash basis levels for soft red wheat jumping sharply in the US Gulf as supplies of export grade grain remain tight in the early harvest period. Early harvested wheat in the Ohio River Valley and mid-South has g=higher than desired vomitoxin levels, which will necessitate blending down with better quality grain or use in animal feed. The lower quality grain and recent rain delays to harvest have left exporters short of volume hence the rise in basis levels in recent days.
- The wheat futures market features a carry cost (as opposed inverse) and this is encouraging growers and elevators to sit on stocks with the promise of higher prices in coming months. Added to this, flour millers are bidding to secure supplies and compete with exporters increasing pressure on prices. The impact on cash corn prices has also been noticed as farmer selling has slowed as futures market prices have declined in recent weeks.
- Old crop US soybean export sales were, once again, above expectations at 11.7 million bu (318,000 mt) aiding today’s price gains. The buyer(s)/destination(s) were unknown (although Europe was widely rumoured to be the destination), and many expect the sale to be shipped in the new crop position rather than the old, as the sales were reported. Interestingly, the US origin was seen as better value following the rise in Brazilian premiums this week.
- The IGC (International Grains Council) today increased their estimate of world wheat output by 5 million mt to 699 million mt. This is low when compared with other trade estimates, which range from 707 to 711 million mt largely supported by bigger crops anticipated in Russia, EU, Canada and Australia.