The NYSE LIFFE exchange has experienced further difficulties with a total of three periods this week when trading had to be halted due to “technical problems”.
CBOT markets appear to have lost some of their “mojo” after last week’s stocks report, which gave them a lift. Wheat has continued its range-bound and sideways track that has been in place since late July; support around $8.55 and resistance at $9.25 seem destined to contain this market at the present time.
Corn, which has been in decline throughout September, found a foothold from the stocks report and has traded off its low since publication. Opinion as to ultimate yield levels is well divided either side of the USDA’s last reported figures. We are starting to get private forecasters opinions as to the USDA’s October figure but ultimately the market will trade whatever figure is provided in the official report.
Soybeans, like corn, have been in a downtrend through the month of September as expectation of better than previously estimated yield pervade the market. However, the publication by StatsCan of their canola output estimate at 2 million mt less than previously forecast and below demand levels, gave the market a timely boost this week. The decline is attributed to heat and dryness through late August and September and sees a month on month decline across all crops.
The forecast low canola output and low carryover stock position leaves Canada with an estimated million mt plus deficit. With prices having followed soybeans lower to seven-month lows, consumption is being stimulated rather than rationed. The tight global oilseed position is seemingly receiving no respite and we face a near record low global canola stocks to use ratio. Clearly, as with soybeans, demand rationing will have to come into play and prices feel as if we have either seen, or are about to see, a seasonal low buying opportunity. Interestingly, Canadian feed grains production is estimated at more than a million mt less than thought a month ago. The upshot of this being that Canada will either be a net importer of corn or feed more wheat; adding further pressure to already tight global supply and demand patterns.
One fact remains crystal clear right now, and that is the pace of the US soybean and corn harvest. As of last weekend soybeans were 41% harvested, well above the five-year average of 19%. Corn was 54% harvested, again like soybeans, above the five-year 20% average. Weather continues to be friendly and support the on-going pace, which makes an early completion look highly likely right now. The upside is that we will have a good handle on actual output somewhat earlier than in previous seasons and the likely direction of prices may become slightly easier to assess. Meanwhile, in the US physical corn and soybean markets, bidding is strong with few sellers despite being in the middle of harvest which is helping to keep cash basis above seasonal norms.
US soybean exports were, once again, at high levels as this week’s reported figure was 1.3 million mt, bringing this year’s commitment to 23.5 million mt. This figure represents a staggering 82% of the USDA’s forecast annual exports of 28.7 million mt. Clearly, rationing is not yet being featured! Next week’s figures are expected to show little change as China would appear to have been continuing to take advantage of the pullback in prices to secure additional tonnage.
In our view price risk remains to the upside as current pricing is reflecting a bearish crop report. Any change to this, in other words any bullish news within the forthcoming report or subsequent adverse yield news, could well send prices higher adding credence to our earlier “seasonal low” comment.
In wheat, we saw Egypt once again in the market with France showing its competitive position by securing 180,000 mt and Argentina winning a 60,000-mt shipment, its first this season. Interestingly there were no Black Sea offers confirming our previously stated opinion on their supply situation. Indeed Russia has reportedly sold about 10% of its intervention stocks onto the domestic market to counter rising prices, which have reached record highs. US offers were competitive on a FOB basis, however the additional freight costs left them out in the cold on this occasion.
Finally, the UK domestic grain market is receiving concern over the prospects for next year’s grain crops even though this year’s is not fully harvested. Wet weather, which has delayed this year’s crop, has hampered both drilling and crop establishment as rain continues to fall on already saturated fields.
The prospect of acres lying unplanted, or fallow, is looking very real and this will impact output next year, hot on the heels of this year’s much discussed weather-hampered season in which both yield and quality have been compromised. Unless conditions change, and change rapidly for drier weather, we will be facing another potentially poor season.