• In good old “turnaround Tuesday” fashion, we see US markets closing tonight lower as funds decided to sell as harvest data continued to surprise to the upside with better than expected yields. As we have reported previously, harvest pressure appears to be carrying the day (today). We see some wet weather in the US forecast, which will slow harvest progress, but this appears to be limited, and there appears to be limited risk of freezing conditions for the next week or so.

• The US spring wheat harvest has surprised, to the upside, as N Dakota yields hit 46 bu/acre, which equals the 2009 record. Cool summer conditions are reported to be responsible for improved yields.. N Dakota is significant insofar as it is the US’s second largest wheat state after Kansas.

• Closer to home, Stratégie Grains have forecast EU soft wheat imports to decline in 2013/14 to 3 million mt, some 600,000 mt below 2012/13 despite more competitive prices from Black Sea origins. However, the volume available from Russia and Ukraine is unlikely to become a major import threat at this time because of the initial high export volumes seen this season.

• Lack of official data from the “closed” USA coupled with a quiet EU market, which is heading to the European Bourse towards the end of the week, means we will be in for an unsurprising week of lacklustre data.

• Life becomes somewhat more difficult whilst the US remains “closed for business”. The Federal Government shutdown of “non-essential” departments, now in its seventh day due to lapse in funding, includes thousands of crop scouts who are (or rather, were) in the process of compiling their survey data in advance of next Friday’s USA crop report and WASDE (World Agricultural Supply and Demand Estimates) report. Today the department confirmed that the report would not be released. One commentator is quoted as saying, “It leaves the market in a bit of a fog.” something of an understatement in our opinion!

• There have been rumours (unconfirmed) of significant Chinese buying in corn today, which would not be reported as normal due to the government shutdown. Cynics might view this as an “under the radar” stealth raid by Chinese buyers, although we do not subscribe to that particular theory. The rumour has, however, been sufficient to place some degree of support under the grains in today’s trade, where it is reported that Dec ’13 corn volume has reached in excess of 100,000 contracts. Soybeans and wheat have been less active, and it is believed that the lack of data is, unsurprisingly, leading towards a “risk-off” attitude.

• Once again, as a result of the shutdown, we will not be getting updates on crop condition or harvest progress, however, it is estimated that around 20-22% of the soybean crop is harvested and 19-21% of the corn crop gathered. Clearly, the more of the crops which are harvested the less important the reports will become as we will be dealing with actual harvest data rather than estimates and survey derived information.

• In the absence of hard fact we can only report that we continue to hear of Midwest corn and soybean yields continuing to provide a pleasant surprise, being better that previously thought. The prospect of a larger US soybean and corn harvest is looking more and more likely right now. This will place a cap on any price rallies, and we continue to believe these will prove to be selling opportunities when we look back.

• Russian winter grain planting acreage is expected to be smaller this year due to bad weather; rain is expected to curtail overall plantings, including wheat, which is a precursor to reduced exports in 2014 and a potential “pinch-point” for next year’s global supplies. Russian grain exports this year (2013/14) are officially expected to be 20 million mt, of which 9.1 million mt have already been exported in the July – September period. Included in this figure are 7.5 million mt of wheat and 1.2 million mt of barley. Not only is weather an issue, but domestic restocking by the government together with a reported lack of quality wheat, are all expected to lead to less competitive export activity – particularly compared with other Black Sea operators such as Ukraine.

• The Russian news has the potential to pave the way for a continuation of the fast pace of EU wheat exports with the potential for a total tonnage in the order of 26 million mt being freely discussed.

Weekly summary:

• This week’s big news is probably the partial shutdown of the US Federal Government following Congress’ failure to agree a new budget. The Republican-led House of Representatives insisted on delaying President Barack Obama’s healthcare reform, dubbed “Obamacare”, as a condition for passing a bill. More than 700,000 federal employees face unpaid leave with no guarantee of back pay once the deadlock is over. This is the first shutdown in 17 years and the dollar fell early on Tuesday when the news broke.

• The impact upon markets is less than clear, but one thing is sure, and that is that uncertainty is far from helpful. US export data, scheduled for release Thursday this week was not issued, and there are suggestions that the USDA’s October crop report is far from certain to be released on schedule. Under these circumstances, it is likely that a combination of actual corn and soybean harvest data and trade estimates will become the pillar upon which markets will function in the short term.

• The US soybean harvest is beginning to gather pace as it moves northwards and as we continue to hear of better than anticipated yields, it is difficult to argue against a continued bearish pattern particularly in the context of rising overall oilseed output across the globe as a whole.

• In corn too, harvest is well under way, although there is likely to be a weather interruption for a few days, and the market having dropped to below $4.40/bu, basis Dec ’13 CBOT, is now lacking direction, and feels resigned to sympathise with its cousin, wheat. Global importers continue to source non-US origin supplies from both Brazil and Black Sea, both representing better value to the buyer for the time being.

• Wheat has a somewhat less bearish feel to it right now with three key markets (CBOT, Paris and London) all displaying a potentially bullish “double bottom” chart formation in front month contracts, and CBOT has recently gained in excess of $0.50/bu (around 8.8%) in the Dec ’13 contract from it’s contract lows. Brazil continues to look further afield for wheat supplies due to reduced Argentine availability, and both US and Canada appear to be likely origins. Some relief to the wheat market may appear in the form of a forecast weather window assisting the wet weather hit plantings in Russia and Ukraine where progress is currently well behind average. The delay has raised concerns on overall grain output for 2014 and the potential impact upon export availability in the region.

• Brussels has granted another big week (the largest so far this season) of wheat export licences with 757,832 mt, which brings the season total to 7.228 million mt. This is an increase of 2.945 million mt over the same time last year (68.8%).

• In the UK DEFRA have released their latest update (Sep ’13 compared with May ’13) to 2012/13 grain balance sheets, which whilst academic in the historic sense, have relevance insofar as they impact opening stock levels and therefore the 2013/14 balance sheet. For wheat, commercial end stocks rose by 251,000 mt; this was a result of increased imports (407,000 mt) and a reduction in exports (63,000 mt) offset by increased domestic consumption (219,000 mt). Barley stocks also increased, but only by 43,000 mt leaving a combined additional grain stocks total close to 300,000 mt with which to start to 2013/14 season. Both empirical and anecdotal evidence shows that early season import volumes have remained elevated this season as millers looked to imports to ensure sufficiency of supply, particularly in the early part of the season. In the light of latest UK harvest estimates it would appear that the domestic S&D position is not as tight as was first feared.

• Added to the UK’s “good news”, COCERAL’s latest forecast for the combined EU soft wheat crop is 132.5 million mt, an increase of close to 4.5 million mt from their last estimate. This level of output, if realized, would add credibility to suggestions of overall EU exports this season reaching 26 million mt.

• Wednesday this week saw something of an explosion to the upside in Paris rapeseed, caused by news that there is to be an import tax on Indonesian and Argentine bio-diesel with the resultant EU domestic crush growing. This news was sufficient to raise not only Paris, but also Canadian rapeseed and provide some support into CBOT beans. The close in Paris saw the market give back nearly half of the day’s gain, and the remainder of the week has seen little in the way of change.

• In other news, we have today heard that StatsCan have all but confirmed record wheat and canola (rapeseed) crops as September weather boosted already good looking output. They forecast wheat up 22% on last year to a record 33.02 million mt, and canola up 15.9% to 15.96 million mt. Canada is the world’s number one producer and exporter of canola and the number two exporter of wheat.

• In summary, we continue to look for lower levels, particularly in corn and soybeans as the US harvest gets into full swing, and if these materialize would also expect to see further downward pressure brought to bear upon wheat prices.

• CBOT and EU prices have all displayed stronger tones throughout most of the day despite broker, F C Stone Intl, increasing its estimate for 2013 US corn output yesterday. Their forecast output now rests at 14.15 billion bu, an increase from 13.942 billion bu last month; yield is pegged at 158.7 bu/acre, up from last month’s 156.4 bu/acre. 2013 soybean output was also increased month on month to 3.163 billion bu from 3.146 billion bu. Yield was marginally increased to 41.4 bu/acre from 41.2 bu/acre. For comparison purposes, the latest USDA numbers are; corn 13.843 billion bu with a yield of 155.3 bu/acre, and soybeans 3.149 billion bu with yield at 41.2 bu/acre.

• Stratégie Grains have reported on the French corn harvest which is just getting under way, and have estimated output marginally down at 15.526 million mt, a decrease of 80,000 mt from a month ago based upon slight reductions in both acreage and yield. If achieved, output will be slightly behind last year’s output of 15.614 million mt.

• Reuters today announced that the USDA will not be issuing its usual weekly export sales data due to shutdowns in the Federal Government which Congress has yet to resolve. Others are questioning the timeliness (or otherwise) of the forthcoming October crop report – no doubt time will tell on that!

• In the UK DEFRA have released their latest update (Sep ’13 compared with May ’13) to 2012/13 grain balance sheets, which whilst academic in the historic sense, have a relevance insofar as they impact opening stock levels and therefore the 2013/14 balance sheet. For wheat commercial end stocks rose by 251,000 mt; this was a result of increased imports (407,000 mt) and a reduction in exports (63,000 mt) offset by increased domestic consumption (219,000 mt). Barley stocks also increased, but only by 43,000 mt leaving a combined additional grain stocks total close to 300,000 mt with which to start to 2013/14 season. Both empirical and anecdotal evidence shows that early season import volumes have remained elevated this season as millers looked to imports to ensure sufficiency of supply, particularly in the early part of the season. In the light of latest UK harvest estimates it would appear that the domestic S&D position is not as tight as was first feared.

• Brussels has granted another big week (the largest so far this season) of wheat export licences with 757,832 mt, which brings the season total to 7.228 million mt. This is an increase of 2.945 million mt over the same time last year (68.8%).

• Despite what is written above, real news continues to be noticeable by its absence! Global weather seems to be broadly favourable and early US harvest data continues to impress when compared with some of the earlier “gloom and doom”. One fact appears clear right now, and that is that the premium attributed to US wheat continues to grow and will no doubt ration exports to some extent.

• Today has been somewhat dull with the exception of an explosion to the upside in Paris rapeseed, caused by news that there is to be an import tax on Indonesian and Argentine bio-diesel with the resultant EU domestic crush growing. This news was sufficient to raise not only Paris, but Canadian rapeseed and put some support into CBOT beans. The close in Paris saw the market give back nearly half of the day’s gain.

• Today’s gain in soybeans has filled yesterday’s “gap”, albeit earlier than we expected, but does pave the way for lower prices if the market feels so inclined. We stated yesterday that the “gap” was likely to become an upside target and would probably be filled in a rally from lower levels.

• US harvest pace is likely going to see a slowdown into and over the weekend as wet conditions interrupt progress. Elsewhere we hear that a planting window is possible in the wet Ukraine as dry and warmer conditions move in, potentially allowing seeding to progress from its lacklustre start.

• There is little else in the sway of fresh or startling news tonight.

• Markets appear to have continued to take yesterdays stocks report to heart and losses have extended into trading today. The soybean market (Nov ’13 contract) “gapped” lower on opening leaving a chart gap formation which may yet become an upside target in coming days. Wheat has traded either side of unchanged and lacks the downside momentum which has been exhibited in the soybean complex and corn. The pace of winter seeding in Russia and Ukraine, which we reported on last night, is clearly lending some support. It is possible that any further decline in corn may well pressure wheat values, but without that pressure wheat appears to have found a base – for now. Wheat’s premium over corn (basis Dec ’13 CBOT contracts) has grown still further to $2.44/bu or 55%.

• Market confidence may not be assisted by news overnight that the US government is partially “closed for business” for now, and it is possible that this could cause delays in forthcoming USDA reporting schedules if staff are not in a position to collect, collate and prepare the necessary data.

• US crop conditions, reported yesterday showed corn rated as good/excellent to be unchanged week on week at 55%. 12% was reported to have been harvested, which is behind the five year average of 23%, unsurprisingly. Soybeans were 53% good/excellent, a surprise 3% improvement week on week, and 11% is harvested as against the five year average figure of 20%.

• Today’s USDA (NASS) Small Grain & Stocks report sparked some interest into what was, last week, a pretty dull affair. The report has been construed as bearish for soybeans and corn, whilst being supportive for wheat, and the market has traded accordingly with Dec ’13 corn (at last) breaking below the mid-August low and reaching a low (so far) just above $4.42/bu. Prices look set to test the much discussed $4.25/bu level as harvest gears up and supplies become more freely available. Soybeans fell amid funds liquidating some of their long positions with the Nov ’13 contract breaking below the $13.00/bu level and trading close to $12.84/bu. Wheat markets bounced around with the Dec ’13 contract trading close to a $0.20/bu range before settling lower towards to close.

Sep 1 stocks of corn were reported as 824 million bu, which is above estimates of 681 million bu and below last year’s Sep 1 figure of 989 million bu
Sep 1 stocks of soybeans were reported as 141 million bu, which is above estimates of 124 million bu and below last year’s Sep 1 figure of 169 million bu
Sep 1 all wheat stocks were reported as 1,855 million bu, which is below estimates of 1,913 million bu and below last year’s Sep 1 figure of 2,105 million bu

• ABIOVE, the Brazilian Vegetable Oil Industries Association, has in its latest forecast pegged the 2013/14 soybean crop at 86 million mt, an increase from 81.6 million mt year on year. Exports are also seen higher at 44 million mt, which would be a 2.5 million mt increase year on year.

• In other news we are picking up on reports of the planting delays in Russia and Ukraine becoming more serious with persistent cold and wet conditions. Some areas are reported to have received as much as 4-6 times the normal rainfall, and field conditions have beed described as “atrocious”. At the end of last week Russia had achieved grain plantings of 7.6 million ha, which represents 46% of the potential planted area, and compares with 11.4 million ha at the same time last year. In Ukraine the planting pace is slower with only 25% of the planned area sown. The significance of this news is greater in the region due to the northern latitude and reduced period available for crop establishment and development. Late sown crops have poor foliage and root system development, which can reduce winter hardiness and lead to greater susceptibility to winter kill as well as reduced tillering (hence lower yield) in surviving crops. For the region to produce to its capability will require an extremely swift change of weather pattern to enable planting to continue and crops to establish prior to onset of cold winter conditions.

To download the weekly update as a PDF file please click on the link below:

Weekly Update 27 September 2013

Our weekly fund position charts can be downloaded by clicking on the link below:

Fund positions

• CBOT grain markets saw a day of consolidation following Wednesdays strong performance and the soybean market was the subject of some profit taking. There was little in the way of fresh news (once again) and it appears the trigger for gains in grain were based upon fears over the Argentine wheat crop weather, the possibility that China may need further supplies, and Russia’s intervention purchasing. None of these are “fresh news” and prices rose in what appears to be thin volumes, hence our view that the rally will be short lived, and provides a selling opportunity.

• The USDA released its weekly export figures as detailed below:

Wheat: 620,200 mt, which is within estimates of 500,000-700,000 mt.
Corn: 640.100 mt, which is above estimates of 400,000-600,000 mt.
Soybeans: 2,826,300 mt, which is above estimates of 2.300,000-2,800,000 mt.
Soybean Meal: 246,700 mt, which is above estimates of 95,000-230,000 mt.
Soybean Oil: Minus 300 mt (as a consequence of cancellations), and is below estimates of 10,000-20,000 mt.

• Brussels has issued weekly wheat export certificates for 471,238 mt, which brings the season total to 6,470,103 mt. This is above last year by 2.768 million mt (74.8%).

• CBOT markets, and European grains, are all trading in positive territory tonight as wheat leads the way forward. Technical triggers, namely trading above the 50 day moving average, have stimulated fund buying and this has lifted corn and the soybean complex to higher levels. Added to this there are concerns over recent Argentine frost and the potential for further demand from China (estimated at a further 1 million mt above existing commitments) which the bulls have taken to heart. Recent news that Russia is shortly to embark upon an intervention purchase programme also lent another degree of support to the positive tone. The final bullish note comes from news that Brazil may add to its waiver of import tax upon non S American supplies of another 600,000 mt of wheat, this is more than likely to be of benefit to US hard red wheat, hence supportive.

• In Russia, the AgMin reported that 76% of their wheat area has been harvested with output at 46.9 million mt. Whilst it is wrong to extrapolate this information into final output, we felt duty bound to do so! The answer, for those interested, reaches 61.7 million mt – however, before becoming too excited, it is important to remind that yield data to date is unlikely to be replicated on remaining acreage (unfortunately).

• Reuters crop forecasting arm, Lanworth, today updated their forecasts with 2013/14 global corn output increased 7 million mt to 949 million mt; Brazil is forecast to account for 75.9 million mt and Argentina 28.2 million mt. Their latest global soybean output numbers for 2013/14 stand 3 million mt higher at 284 million mt, Brazil accounting for 88.3 million mt and Argentina 56.9 million mt.

• To put the other side of the equation, early US corn yields continue to impress although the pace of progress is behind hoped for levels, but with positive weather prospects in the near term. Soybean harvest data is still to early and too scant to suggest any sort of trend however, initial numbers are encouraging. On the back of both corn and soybean new crop availability the previously strong cash basis continues to weaken as buyers back off and await supplies coming to them rather than chase availability.

• We find ourselves watching a seasonal “cat and mouse” affair which will continue to unfold in coming weeks.