- Midday comments:
- Friday’s wheat support, which came largely from the ongoing tensions between Ukraine and Russia and sparked short covering prior to the weekend, appear to have largely dissipated and early morning trade has given back Friday’s gains – and more. Ongoing reports of military equipment on the border will undoubtedly keep risk premium in the market though if feels as if tension induced pressure now lasts a matter of hours rather than days, as was the case earlier in the dispute. Grain exports from both Russia and Ukraine continue with seemingly no disruption, and there is continued pressure on the farmer, particularly in Russia, to continue selling to avoid interest rates as high as 16%, pushed to these levels by financial and banking sanctions taking effect.
- Corn markets received something of a boost from positive technicals in weekly charts as well as talk of sharply reduced potential planted acreage in S America and possibly Ukraine next year. However, bearish weather, potentially bearish news reports from the ProFarmer tour and a negative US export demand picture as US prices tighten their spread to other major exporting nations all lean on prices to the downside. In addition, the quantity of EU feed grade wheat that will doubtless be looking for a home, and therefore competing with corn, should not be forgotten.
- From a soybean perspective it feels as if the market has failed to fully price in (to the downside) the huge supply that will shortly become available to the market place. The cash market has been led by the tightness in nearby positions that has plagued the market for much of the last season, and still lingers despite the disappearance of the August futures contract last week. Weather looks to be excellent for adding to the USDA’s latest yield forecast, particularly when added to last weeks rainfall. Temperatures remain non-threatening and crop prospects remain excellent right now.
- Evening update:
- Soybeans and meal look to be heading into the close in positive territory whilst the grains are trading lower today. The ongoing strong cash basis in soybeans for August and September is cited as the key to higher levels, and continues to lend support to the new crop positions. The current nearby market has been described as a game of “musical chairs”, no crusher/exporter wants more supply (at high prices) than absolutely necessary. When demand is sated (music ends) prices will very likely drop – dramatically, and the plentiful new crop availability will drive the market lower – substantially in our opinion. Timing of this is key.
- Without doubt, if we were not witnessing such a tight old to new crop transition this season we would be seeing very different pricing structure right now particularly in the light of such favourable weather forecasts for the coming two weeks. The US corn and soybean harvest looks to be on target to start in earnest across the Delta and far southern midwest in a couple of weeks and we would certainly not wish to be holding a long position at that time!