- Monday sees a return to normality as far as working hours and routines are concerned. As we awoke it felt as if some bargains might be on the horizon in the aftermath of the late Friday lashing which afflicted CBOT soybean and corn markets after we had (nearly) all closed up shop for the weekend. The decision by OPEC to hold crude oil output steady had a depressing impact on global energy prices which retreated to their lowest levels since 2009. Competition between the traditional crude producers and the shale producers is likely to keep pressure on biofuels from corn and vegoils. The global oversupply in oil and the fact that US blending margins for both ethanol and biodiesel are deeply negative adds to the pressure.
- The technical “head and shoulders” pattern which has been building in soybean and meal charts remains in place and it feels very much as if this will be tested in coming days. The level of support seen will be important and a determinant of future direction into the year end.
- The weekend saw no fresh news on the legislative position to be adopted by Russia in relation to grain exports and the Rouble continued to look weak. There were rumours of tariff imposition late last week although it seems that by the time these could be put in place, which would likely be Feb/Mar 2015, up to 90% of the exportable crop would already be exported. Therefore market strength related to the news appears a little premature to say the least.
- News that one of the worlds biggest hedge fund managers, Brevan Howard, is to shut its $610 million commodities fund following losses suggested to be 4.25% to October ’14, highlights the ongoing poor performance in the commodities world. The Thompson Reuters Core Commodities CRB Index, which embraces 19 commodities, has fallen by 9.2% this year, its biggest fall since 2008. Excess supplies and weaker growth in China, a major buyer of commodities including soybeans, iron ore and copper, has impacted market prices and outlook negatively. The outlook for China remains weak and appears to be heading for its slowest expansion in growth in 24 years. Little wonder that “tremors” are being felt elsewhere and nervousness over growth around the world abounds.
- A quick round up of global weather issues highlights that drought is persisting in Russian winter grain regions. Cold and dry conditions persist across EasternRussia which is reported to be impacting winter grains negatively although we believe it is perhaps a little early to be raising concern levels too high. Lack of snow cover is reported to have allowed frost to penetrate deeply into soils. The key Southern District which produces over 60% of winter wheat has received only 8mm out of the usual 35mm of rainfall in the last month. Late summer drought has lasted with only 55% of normal precipitation falling across the four key southern regions of Krasnodar, Stavropol, Rostov and Volgograd. The Black Earth wheat, north and east of Ukraine, has received only 25% of normal rainfall in the last three months. In total, some 80% of Russian wheat area is under some form of stress and this needs to be watched in coming weeks.
- It is reported that another (3rd) cargo of EU feed wheat has been sold into the US. This latest cargo is reported to be French origin, and it should be stressed this is, as yet, unconfirmed.
- Fund buying of wheat has been the feature of the day as prices get close to $5.90/$6.00 basis the Mar ’15 contract. These price levels feel very heavy, particularly in relation to corn, and we would expect to see feed users and ethanol producers looking very closely at the economics of switching away from wheat and into corn.
- China has reported its corn stockpile to be at a record high of 120 million mt, which is 42.4 million mt or 55% above the USDA’s latest estimates. Stock of this level equates to 60% of annual usage and there are suggestions that additional storage is needed to accommodate the enormous stockpile. The record stocks have been encouraged by a government minimum price reported to be over $10.00/bu in 2014 as well as improvements in agricultural practice which have improved output significantly. Record yields have been set in each of the last seven seasons as well as growth in planted acres resulting in today’s reported stock levels. Under current WTO commitments China cannot subsidise exports and will have to increase domestic consumption in order to utilise stocks. It is expected that GMO and phyto-sanitary rules will be fully utilised by China to reduce or eliminate cheaper imports, and it is estimated that up to four years could be required to reduce stocks to a manageable level.