It has been yet another intriguing week following last Friday’s USDA report. We thought we would look at some of the seeming anomalies arising from the detail and see where they pointed us.

1. In soybeans we saw increased US yield, above trade estimates and seemingly not as a consequence of a huge pod count; the actual figure is the lowest in nine years! Not only that, they have increased the weight of beans per pod in each of the last two reports AND the November report gave the highest pod weight in nine years, all in a drought year!
   
2. The corn numbers saw US yield marginally higher and closer to the upper end of the range of trade estimates. The key element as yet unrecorded will be the percentage of the crop harvested, or, put the other way round, what was either abandoned or cut for forage in a year when grassland was burned to a crisp by the drought. We will know in the January report what this figure is but we would place a small wager that it will leave the harvested proportion lower than stated in the latest report
3. An unchanged corn output in both Ukraine and Argentina left us scratching our heads in wonderment. The weather conditions in both regions have left the crop hugely vulnerable to reduced output according to virtually everything we see and hear.
4. The level of world corn imports has seen an increase of just 3 million mt, which seems light to us even if we just look at the potential for increased volumes in the EU.
5. In wheat, we acknowledge the USDA’s reduction in Australian output, but it appears they “forgot” to consider the same course of action as far as Argentina is concerned! The Argentine crop was left unchanged at 11.5 million mt which, given their atrocious conditions, is looking likely to impact both yield and quality.
6. Finally, the (slight) reduction in US wheat exports caused a raised eyebrow given the reduced export potential in other key exporting regions, namely Black Sea, EU, Australia and Argentina.

We would not wish to be considered arrogant in our opinion, preferring the title of “challenging” in our interpretation of the reported data. Clearly, time will tell if our thought process is on the right track or not.

Aside from the review of last week’s report we have had “confirmation” (once again) of Ukraine’s cessation of exports effective 1st December. Where this will leave those who have shipments scheduled after that date is anyone’s guess right now but we would not wish to be holders of such contracts today. As we write this, it appears that wheat exports from the region are getting priority and corn shipments are dangerously close to going into default as a consequence.

This week’s EU total wheat export licenses reached a whopping 750,000 mt, the largest figure since the Russian export embargo in September 2010 when the figure hit 1 million mt. The cumulative figure now stands at 7.3 million mt a full 6.5% greater than the same time last year. Pressure is clearly in place for this export pace to continue due to limited supplies from elsewhere, we suspect this week’s “optional origin” purchase of 400,000 mt by Algeria is likely coming from France. Hopefully this adds credibility to our earlier comment on the need for greater corn imports to fill the growing gap in feed requirements.

One further point for consideration was the news on Wednesday that the US Army Corps of Engineers are about to proceed with plans to reduce the flow of water from the upper reaches of the Missouri river reservoirs in an effort to preserve water stocks in a drought related conservation measure. The impact of this measure is to potentially lower the water levels in the Mississippi between St Louis and Cairo, Illinois at a time when water levels are already low following the summer long drought. The prospect of barge traffic being halted as a result is believed to be very real and the stranglehold this will place upon grain exports is not to be underestimated. Measures to keep the waterway open for longer, such as dredging and removal of obstructions, are being discussed but concerns are rising. There are on-going discussions as to the legality of the measure, which we will watch with interest.

Once again we have had a week where we have seen a decline in prices, which we find hard to justify based upon fundamental news and information. Under the circumstances we continue to recommend keeping cover at high levels and using dips to top up as necessary.