The USDA reported US crop progress last night as follows:

Corn crop 69% harvested which is below estimates of 70% but up from 29% yoy, and above the 5 year average of 28%.
Soy crop is 58% harvested which is below estimates of 61% but up from 42% yoy, and above the 5 year average of 40%.
Winter wheat crop is 57% planted which is up from 40% wow and 53% yoy, but below the 5 year average of 59%.

France’s AgriMer estimates French 2012/13 wheat end stocks at 1.8 million mt which is down 0.6 million mt mom which would be the lowest level in 13 years. A key driver of their figure is the increased estimate of exports outside the EU at 9 million mt, an increase of 500,000 mt mom.

The NFU have released their estimate of UK wheat production at 13.25 million mt, the lowest since 2007 when  the planted acreage was 1.8 million ha or 10% lower than this year. The yield figure is pegged at 6.7 mt/ha, the lowest since 1988.

Oil World, ahead of tomorrow’s USDA report, claim US soybean stocks are set for a sharp drop despite hopes for improved production. Improved output at 2..786 billion bu, which is in line with estimates, will not make up for the strength of demand being shown by importers and China in particular, they said. Reduced S American output last year following dry growing conditions has emphasised the draw down on US supplies. In addition, the delay in Brazilian rainfall which is delaying crop planting lessens the prospect of an early harvest which would be needed to ease global supply tightness.

CBOT markets has been in “position squaring” mode ahead of tomorrows report. Traders are talking of preferring to buy into any soybean rally if it materialises rather than being caught by bearish figures. The resulting decline in soybean prices has seen China displaying further buying interest even after committing to 120,000 mt on Monday; clear evidence of “picking value.” Despite anticipation of a bigger crop we must see demand rationing to preserve some crop into the second half of the marketing year.

Tomorrow is going to be very interesting. Buckle up and enjoy the ride!

The US markets opened in good old traditional “turnaround” style as befits a Tuesday. However gains have been limited and the market feels as if it is struggling to hold onto gains as bearish traders cap rallies by selling strength.

We feel that it is possible we may yet get a bullish surprise, particularly on corn, which will impact wheat by association, and higher priced corn will lead to feeding of wheat. Russian domestic grain prices continue to hit record highs and EU prices are rising as supplies start to tighten.

Without doubt there is a massive emphasis being placed upon sizeable S American crops to relieve the tight global S&D position; we question if this is possible, and if not – where do prices go next?

Tonight will be a brief report as I am travelling and we are seeing a market which is lacklustre in advance of Thursday’s report. There is a huge divergence of opinion over the size of the US corn crop despite the fact that it is well harvested right now. Informa’s figure of 11.2 billion bu is countered by Cordonnier at 1.234 billion bu lower (31.3 million mt lower). This illustrates the lack of consensus and possibility of a surprise on Thursday.

Market estimates are as follows:
Yield – average, 122.884 bushels per acre; highest, 127.0 bushels per acre; lowest, 120.0 bushels per acre
Harvested area – average, 86.136m acres; highest, 87.5m acres; lowest, 83.0m acres
Harvest – average, 10.601bn bushels; highest, 11.194bn bushels; lowest, 9.960bn bushels
Current USDA figures – yield, 122.8 bushels per acre; harvested area, 87.4m acres; harvest, 10.727bn bushels

Harvested area alone has a massive variation of 4.5 million acres – little surprise at market reaction in advance of official USDA numbers, the big question being, “will the market believe them?”

UK wheat imports continue to look as if they will reach over 2 million mt as quality grains are being sourced from overseas to replace the lower quality domestic supplies. France, germany and Baltic States all feature as potential sources, and the US does not look outrageously priced today. It will not take much to put the US in the right price bracket and enable supplies to reach our shores at some time this season.

We anticipate choppy price action this week in advance of the crop report; direction will be dictated after publication and jockeying for position will be the order of the day until then.

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.

US markets started the day a touch higher with the soybean complex leading the way. First quoted soybeans reached their most oversold condition in almost a year yesterday and some form of correction felt inevitable. For further declines in soybeans we will have to see significantly higher yield figures in the October report.

The price recovery continued through the session supported by the bullish StatsCan report as far as canola is concerned. Production was reduced by 2 million mt to 13.4 million mt which is below forecast demand levels. Prices jumped sharply across soybeans, canola and Paris rapeseed.

The highlight of the US export figures was the level of soybean sales at 47.6 million bu, China accounting for 37.7 million of these. A hefty 82% of forecast exports is now committed leaving precious little for the remainder of the marketing year. This week is likely to show significant soybean sales as well, China has continued to be an active buyer on this dip in prices

The key question now is, “have we just seen the seasonal low price in soybeans?”

Turning away from the much debated US harvest for a moment we note the level of concern being expressed at the prospects for next year’s UK 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.

UK wheat import volumes this season are likely to exceed those of the 2007/8 season when a total of 1.44 million mt was imported to bolster the poor harvest. In that year though the quality of the harvest was significantly better than that harvested this year and demand levels then were probably half a million tonnes less than they are today. Early signs confirm the situation with July showing net imports in excess of 100,000 mt, albeit much was imported to shore up demand which could not be satisfied by the weather delayed new crop. Additionally, flour millers will likely require imported grain to meet their quality demands which seem unlikely to be met by domestic supplies this season.

In today’s wheat tender by Egypt it was noticeable that Russia put forward no offers, indeed nothing was offered from the Black Sea region as a whole. Argentina secured 60,000 mt of business as France picked up the remaining 180,000 mt and despite reduced FOB offers for US origin wheat the freight disadvantage when compared with France left the US out in the cold.

US broker FC Stone has estimated the US soybean crop at 2.489 million bu, an improvement of 215 million bu and a yield of 38.2 bu/acre which is 2.9 bu/acre above the last USDA estimate. Corn also received an upgrade to 10.824 billion bu with a yield of 123.9 bu/acre which is a modest increase on the current USDA figures issued in September.

The pace of the US harvest remains rapid with corn reportedly 54% gathered, way above the 20% average; some states are expected to have finished by the weekend, far earlier than in previous years. The soybean crop has reached 41% harvested which compares with just 19% as an average and expectations are for about 60 – 65% by the weekend.

The consequence of such a pace has been for the soybean market to continue to decline as markets anticipate improved soybean yield in the forthcoming private estimates due this week. Wheat prices have also fallen again today whilst corn found a slight foothold on concern that the October output figures and tight end stocks could well cause a rebound.

The underlying fact that soybean stocks are going to be extremely tight, even if we see some improvement in yields, leads us to believe that the current decline represents a buying opportunity and the unwary could well get badly caught out.

Given the liquidation by funds it is interesting to note that the open interest has changed very little; it shows a swing from speculators to commercials, and if there is an appetite for the funds to return we could well see a return to higher levels in speedy fashion. There has been little, if any, demand rationing and the global balance sheet remains tight.

The day after the crop report started with corn displaying a degree more strength than either wheat or soybean complex markets. A combination of bullish USDA data and reports of corn yields which fail to excite have conspired to add to corn’s gains. We have a slew of private forecasts in advance of next week’s USDA crop production report and no doubt traders will be keeping an ear to the ground in an attempt to be one step ahead of the market going into next week.

Soybean yields, whilst variable, would appear to be a little better than expected. The larger than expected old crop stocks reported on Friday are limiting gains and indeed leading to losses. The precursor to a rally will most likely be either greater exports or worse yields.

Wheat markets have eased despite further escalation of Russian domestic prices, to record levels, and little in the way of offers from the Black Sea region. French origins would appear to be globally the most competitive and Matif wheat fell today! Rainfall prospects across Australia’s wheat belt, Argentine regions and the Black Sea winter wheat growing regions do little to bolster confidence going forward.

Short term price pressures, in a downward direction, are clearly driven by current harvest pressures. These conditions will soon be over, as harvests are completed and crop output know, at that time the potential for the bull market to resume will once again emerge.

Once again, in the run up to today’s pivotal 1st September grain stocks report, markets have given way to lower levels as funds reduced their net long positions and the pressure of an extremely rapid US harvest weighed on prices.

Nov ’12 soybeans moved below the $16/bu mark having dropped over $2/bu since early September; corn similarly dropped $1.30 from late August highs; clearly the huge pressure from the large fund positions has taken its toll. In sympathy Dec ’12 wheat has also fallen – but at most $1/bu from the July highs.

Today’s report was anticipated in a nervous fashion by many who were concerned that the key corn stock figure could well include some early harvested new crop volume and, on the surface, appear bearish. However, the reported corn stock figure came out at 988 million bu, which is below estimates of 1.113 million bu and the lowest carryout for eight years. The market reacted with a sharp rally gaining $0.35 in rapid trade and eventually locking the full $0.40 limit higher as traders digest the information. One thing is certain, and that is that the USDA’s October output level for corn will be absolutely crucial for price development going forward. Any yield or output reduction will surely pave the way for a significant jump in prices and likely new highs in price will be required to curb demand to a level which the supply position will allow.

Meanwhile, Soybean stocks were reported at 169 million bu, above estimates of 131 million bu, but the on-going pace of export commitments would seem to absorb the “surplus” and the morning market remains a touchdown. Wheat stocks came in below estimates of 2.279 billion bu at 2.104 billion bu and the (Dec ’12) market has made strong gains right along with the corn market. The USDA has come under fire following a number of their reports in recent years – maybe today’s effort will restore confidence and pave the way for the trade to have faith!

The week has seen Strategie Grains reduce UK wheat output to 13.724 million mt, the lowest level of output since  13.137 million in 2007. This announcement is just the latest in a  steady decline of their estimate since the March 15.587 million mt forecast. This helps to confirm our view that the UK will indeed need to import wheat to prop up the tight balance sheet this season. If this becomes the case we would not be surprised to see US supplies featuring in a competitive tender situation.

Global wheat markets have seen a move away from Russia with the EU believed to be the likely source of Algeria’s 700,000 mt purchase this week. However, it seems that Russia may well have been one of the sources of Iran’s 1 million mt Oct – Dec purchase along with Australia and EU. France and Romania were the two beneficiaries of Egypt’s latest foray into the market place, this time for 300,000 mt for early December shipment, with France winning the lion’s share. There was an offer from Russia in the latest Egyptian tender but it was only 60k mt and it was offered at a premium of $372 per mt, a full $24 higher than the French offer.
In the US, winter wheat seeding was reported at 25% complete as of this past Sunday with no indication of the planting pace slowing. Expectations are for US winter wheat acreage to be up significantly at the expense of other crops and increased potential for double crop soybeans next season. This increase will likely be proportional with stronger soft red than hard red plantings. Some expected precipitation in the drought stricken plains of Kansas should promote growth in early planted fields but additional shower activity will be needed to alleviate the strong concerns for establishment.

News from southern hemisphere wheat producers does little to boost confidence levels right now as dry weather continues to be a feature in Western Australia and the prospect of a crop below 20 million mt is openly discussed by traders. This obviously brings with it concerns as to the ability of Australia to keep up with export levels which we have come to expect.

After last week’s conflicting Russian ministerial commentary on “will they, or won’t they,” limit or restrict exports, the latest information leads us to believe that intervention stocks are likely to be released onto their domestic market to relieve the seemingly inexorable rise in prices which have been a feature this year. If this is the case we doubt that it will allow further grain for release into export markets and alleviate global supply tightness.

If the US markets, and in turn our own domestic grain markets, can gain confidence from today’s stock report, it is quite possible that the price drop experienced in the last few weeks becomes a low point which may not be repeated for some time to come.

US wheat and corn markets have declined ahead of tomorrow’s market report which is anticipated to be bearish. Soybeans gained a degree of strength on short covering but has failed to regain and sustain positive territory so far this session.

Of note was the dismal level of corn exports, 400 mt, higher sales levels were recorded but were offset by cancellations from “unknown destinations”. Soybean sales however have reached 77% of the USDA’s annual forecast with 50 weeks of the marketing year to go! Destinations other than China have featured although it was reported that China have secured further supplies for this season delivery. There still appears to be little, if any, evidence of slowing demand and we believe there is little Brazilian supply to help alleviate the situation.

EU wheat is believed to be the source for Algeria’s 700,000 mt purchase and it was reported today that EU exports last week were 365,000 mt, bringing the season total so far to 3.3 million mt.

Other wheat news includes no rain in the forecast for W Australia into next week and an absence of rain in the forecast for the Black Sea region into mid-October. The current market decline does not seem to reflect the conditions which seem to be developing right now!

Turning to tomorrow’s report we fear that the 1st Sep corn stock figure will reflect some early harvested new crop material and, on the face of it, look better than it truly is. If this transpires to be the case we would expect to see further sharp declines as traders absorb the news. However, we still expect the October output figures to reflect lower figures, particularly in corn. Any growth in soybean output is likely to be more than fully absorbed by the massive pace of exports being experienced right now.

The bare facts still remain pretty clear; we have had a devastating drought year, not just in the US, end stocks in the US and more globally are going to be tight even from a historic perspective and soybean export pace still shows no sign of diminishing. The conclusions we draw remain unchanged on the basis of this outlook.