• Midday comments:

• Yesterday and overnight saw wheat trade either side of unchanged in a period of relatively limited fresh news. It feels as if the wheat market has been looking to the corn market for direction in the absence of other drivers. Some snow and heavy rains in the northern Plains and Canada may possibly provide a degree of support as talk of quality and production downgrades surfaces once again although even higher Russian output ideas and a drier outlook over the next ten or so days in Argentina offers a contrary viewpoint. Monday evening’s crop condition and progress report showed spring wheat to be 74% complete vs. 58% a week ago and the ten year average of 85%. Winter wheat is 12% done vs. 3% last week and the ten year average of 13%, the highest recorded was 22% in 1987, and the lowest was 9% in 2012. Egypt announced a further wheat tender after the close last night, this time for mid-October shipment, the results are expected later today, and we will hopefully be in a position to report on them in the evening update.

• Corn, like wheat, traded either side of unchanged yesterday and overnight with some speculation that the FSA (Farm Service Agency) report would indicate lower corn acres in future USDA reports and thereby limit market downside. Weather conditions rare somewhat mixed with this week trending drier across the Midwest for most of the week and temperatures normalising, rain in the western Plains could well return by the weekend adding to already wet soil conditions potentially raising an potential harvest delay issue. Old crop supplies remain adequate and a “soybean like” squeeze feels unlikely. Corn was rated 74% good/excellent, which is unchanged week on week and compares very favourably with the ten year average of 57%, the highest rating was 85% in 1986. Harvest progress remains unchanged on last week at 4% vs. the ten year average of 11%. The cool and wet conditions this season, whilst pushing up potential output, have also had the knock-on effect of slowing development and maturity somewhat but the forthcoming war and dry conditions should provide some benefit this week.

• Soybean markets saw some short covering on colder weekend weather, wet harvest soil conditions and suggestions that the FSA report may trim acres, volume trade was described as “thin”. Short term nearby cash levels remain firm as processors “pay up” rather than face short term closure whilst awaiting new crop supplies – still. In S America, Brazilian farmers are officially able to plant early maturity soybeans and conditions have been ideal with good showers and soil moisture levels. These soybeans would typically have an end-December harvest and would add to the “wall of supply” that will face the market in the latter part of this year. There was an anticipation of a drop in the soybean crop condition following a cold and wet week, but the good/excellent rating remained at 72%, unchanged week on week, and well above the ten year average of 56%. The highest rating previously was 74% in 1994.

• Evening update:

• Egypt’s GASC secured 180,000 mt of wheat, in what turned out to be an interesting tender, from France at an average of $247.79, a C&F price that was cheaper than all but one of the Russian FOB prices. To see seven Panamax size vessels of Russian wheat at GASC spec for a shipment just four weeks away is surprising to say the least, and interestingly, US soft red was on a par with Russian (to Egypt). Russian premiums are a record high to French at present although prices did dip following the tender.

• Corn prices in Paris closed a touch higher but good weather across the EU and weaker Chicago markets kept a lid on the advance. There is a belief that the French crop will come in well above 17 million mt, and the EU crop will top 70 million mt, alongside a huge feed wheat crop and increasing ideas of barley production. There is little to suggest anything other than a huge surplus of feed grains!

• CBOT wheat and soybeans closed lower whilst corn finished just in positive territory; all fading from earlier short covering rally attempts. News that China had signed an agreement for 4.8 million mt of US soybeans to be supplied over the next year was seen as bullish, and Nov’14 beans rallied almost to $10.00/bu. This volume represents around 6% of China’s annual imports, and as a “frame” agreement is less important that the market initially considered. However, the onset of harvest and ongoing huge yield reports paved the way for the bears once again as the market retreated lower. The harvest is spreading across the Midwest with reports that the E Midwest will begin harvesting in earnest by the weekend or early next week at the latest. The W Midwest is still 10-14 days off but once under way will see a deluge of supply hit the market. Early Midwest yields are coming in at 65-90 bu/acre for soybeans and 185-270 bu/acre for corn, trends that were seen in the Delta and southern states and are being replicated further north – for now.

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

Weekly Update 12 September 2014

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

Fund positions

To download our recap of today’s USDA report please click on the link below:

USDA Recap 11 Sep 2014

• Midday comments:

• Soybeans look to be taking more freeze risk premium out of prices and the market feels as if the threat to the crop is minimal right now. Interestingly there is still good nearby cash demand fr=or soybeans in the US, and this is still providing some support. Expectations are now for quiet trade into Thursday’s USDA report when an upward revision to soybean yield is anticipated. The latest private forecast comes in at 47.1 bu/acre vs. 45.8 a month ago. Regardless of which estimate one looks at, the direction of forecasts shows an upward trend. Focus is not only on yield, World stocks look as if they could reach as much as 90 million mt, which is significantly over the previous record level, which stands at 70 million mt.

• In corn there is little in the way of fresh news overnight, particularly on the supply side. Doubts over US export volumes should China not return to the party continues to give the edge to the bears. Global end stocks look set to jump again on Thursday with a figure in excess of 190 million mt widely expected. Both Ukraine and Argentine FOB corn offers look to be discounted to US levels, which argues the latter is overpriced and needs to drop in order to compete. This season loos very much to be a “buyer’s market”.

• Wheat markets started softer as EU and US prices eased and news from Black Sea regions remained bearish. Additionally, expectation of increased global stocks to be announced Thursday added to downside momentum. The bulls only have heavy rain in Argentina and a slight risk of winter-kill in Australia, which may trim output in both countries, to cling on to.

• Evening Update

• The market has been quiet in the run up to the USDA report tomorrow, pretty much as expected, and there have been more losses. Short covering and position squaring to reduce exposure pre-report has been very much in evidence as has end users taking some cover.

• France, the EU’s top wheat exporter, is expected to see third country export volumes to tumble this season, potentially by as much as 35% and correspondingly stocks look set to rise dramatically according to France AgriMer. Exports of 8 million mt vs. 12.2 million mt last year were the figures quoted with the poor harvest weather impacting quality adversely. One interesting figure in the data was the French EU export number at 8.1 million mt, above last year’s 6.83 million mt. Why the rest of the EU needs French wheat this year, of all years, is beyond us!

• Matif wheat made further losses and contract lows in what seems to be a never-ending slide, although we know that it will end, the question being, “When?”

• Midday comments:

• As weather reports suggest less extremes of temperature  by the weekend some of the weather inspired risk premium appears to be coming out of the market and focus is moving back to the fundamental explosion of supply in coming months. Soybeans look as if they will remain under pressure even after the US harvest is over based upon what looks likely to be huge plantings, or at least planting intentions at this stage. Thursday’s USDA report is expected to show a jump in soybean yields from the August data, and also talk is already circulating on an even bigger jump to final yield from the forthcoming September report.

• Corn, like soybeans, was impacted by both favourable weather and reduced freeze risk in coming days. The market will have a tough job holding onto gains in the face of what appears to be a huge upcoming crop. The market is anticipating a USDA yield marginally over 170 bu/acre, although the range includes as much as 174.1 at the high end.

• Wheat prices tended firmer on strong cash markets as farmer selling was limited and premium grades retained their concern over quantity, this was the only positive market influence.

• Evening update:

• CBOT corn, wheat and soybeans hit new lows as the US$ rallied to its strongest since 2010. Funds added to shorts or exited from “stale” longs. The new lows in Dec ’14 corn and Nov ’14 soybeans added to the bearish profile, likely to extend into the year end. Soybeans broke through the $10.00/bu level potentially triggering further declines.

• Delta and southern US corn and soybean yields continue to impress and make record larges in some cases. Some reports from early corn in Illinois are reporting 200 bu/acre leaving the question, “how big is big?”

• In Paris we saw the second straight contract low despite the forthcoming quiet week (Paris Bourse and USDA) and the upcoming Algerian tender. Cash buyers are scarce and farmer selling is also equally quiet, in relevant regions the farmer appears content to store wheat and sell corn and sunflower seed from the combine. Paris corn also made it’d fourth contract low in five sessions as cash markets saw zero bids! As harvest is just around the corner there is a feeling of desperation at the bearish news that seems to keep coming from US, S America and Black Sea.

• Last night’s US crop condition report was a follows:-

Corn 74% good/excellent, unchanged week on week and up from 54% year on year. Soybeans 72% good/excellent, again unchanged week on week, up from 52% year on year. Spring wheat 60% good/excellent, down 3% on a week ago. The crop is 58% harvested well below last year’s 78%, which is also the five year average. Winter wheat planting is 3% done and very close to historic levels.

• AgroConsult sees the 2014/15 Brazilian soybean crop at a record 95.1 million mt vs. Lanworth’s 98 and USDA’s 91 million mt. Their outlook for the Argentine soybean crop for 2014/15 is also a record, and is 56.6 million mt vs. USDA’s 54 million mt.

• Ukrainian grain exports so far this season (July 1 to Sep 8) are at 5.98 million mt, of which wheat accounts for 3.37 million mt, and is up 44% on a year ago.

• Australia’s Abares sees the 2014/15 Aussie wheat crop at 24.234 million mt below its last estimate of 24.588 million mt. They also reduced their outlook for Canola to 3.388 million mt from 3.47 million mt previously.

• From a US weather perspective, there appears to be little in the way of threat from damaging cold through until 24 September according to latest forecast updates. At that time it is anticipated that crops will be sufficiently mature to avoid any substantive damage.

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

Weekly Update 5 September 2014

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

Fund positions

• Midday comments:

• Yesterday’s downside break-out in CBOT has left the market vulnerable to further declines with $5.23 the next objective, followed by $5.15 basis Dec ’14. The last three months of price consolidation add credence to the “next leg down” theory.  The large volume offers (775,000 mt) in the Egyptian tender plus (conflicting) reports on the imminent Ukrainian ceasefire have left the bulls looking for a place to hide. Given the recent history it would be fair to suggest any resumption in hostilities could leave the market vulnerable to a big upward move, particularly as if seems that funds are starting to rebuild their shorts on a daily basis. Australian weather conditions are trending more favourable into mid-month with showers forecast in southeast and southwest areas. News from China that SinoGrain, the storage company, have stockpiled three times as much wheat this year as they did last year will doubtless lower import expectations – conversely reducing exports from exporting nations. The suggestion that China’s wheat imports will only reach around 57% of last year’s at 3 million mt will not be seen as bullish.

• Corn dropped to four year lows yesterday as crop condition improved, early harvests prove to be better than expected and a rash of private forecasters keep 170 plus bu/acre expectations to the fore. Weaker cash basis in the US Gulf, Ukraine and S America all conspire to keep a lid on prices and there are even suggestions that EU feed wheat now calculates into SE Asia. The likely knock-on effect will be to keep downward pressure on S American plantings, particularly as current corn price levels are below the cost of production in much of Argentina.

• Improved soybean crop conditions and sharply improved yield expectations helped the market lower yesterday although a close eye should be kept on short-term cool weather in some regions. If the next week escapes a freeze (which we believe will be the case) warmer conditions are forecast to return in the second half of the month. Freeze risk will likely trigger fund short covering and a push higher in prices. Early downside targets are $10.08 with potential to see a break as low as $9.77, or lower, as harvest ramps up.

• Midday comments:

• The European Central Bank today reduced its benchmark interest rate to 0.05% in an effort to kick-start flagging Eurozone economy whilst the UK’s Bank of England left its record low rate unchanged for another month. The US$ also surged vs. € across the afternoon trading period.

• The day has developed into another down day with lower prices pretty much all round. There is news that end users are attempting to switch soybean meal contracts from US origin to S America, specifically Argentina, as exporters reduce their FOB basis in efforts to attract new crop sales. Exiting the US leg will doubtless be expensive but US 2014/15 sales pace looks set to reduce dramatically as Argentina becomes ever more aggressive and competitive.

• Paris wheat closed mixed and as much as €2 off the lows, and with the € dropping over 200 points to 14 month lows the market move is hardly viewed as stellar!  Brussels granted wheat export licences amounting to 864,378 mt this week bringing the season to 4.854 million mt, which is just ahead of last year (3.6% or 168,934 mt).

• With Russian cash wheat carry costs looking at risk we view this as a potential trigger for another leg down in cash prices – unless, of course, the Russian Government moves on intervention. In corn, the break to new lows makes technical support difficult to establish. As the US looks to be expensive in export terms and with increased confidence that yield will be 170 bu/acre plus it is getting more difficult to see what can stop a considerable fall in US price levels – excepting a geopolitical catastrophe or climatic disaster! In soybeans, history shows that in high yielding years (and this looks likely this year) soybeans (and corn) tend to make their price lows in October/November rather than the more usual September. The markets, as they currently stand, clearly look as if they have more downside yet.

• Midday comments:

• US crop conditions showed an improvement in both corn and soybeans week on week with the former at 74% good/excellent (vs. 73% last week) and the latter 72% good/excellent (vs. 70% last week). Spring wheat rated good/excellent fell 3% to 63% and harvest is disappointingly slow at 38% complete compared with 61% last year and the ten year average of 73%.

• However, news that a ceasefire in Ukraine was “agreed” has eased tension and markets have reacted accordingly in early trading. President Putin has suggested that a ceasefire is unnecessary as his troops are not involved in hostilities. He should truly be on the stage!

• Overnight corn markets came very close to contract lows amid Ukraine news and weakness in wheat markets. Suggestions that Russia might be suspended from high-profile international cultural, economic and/or sporting events appears to have pushed a resolution ever closer. Corn fundamentals continue to weigh heavily to the downside and if geopolitical distractions are lessened we may well see the way clear for a true reflection of value in coming weeks.

• Overnight soybean markets remain oversold from a technical perspective yet the fundamentals continue to pressure prices. Short-term support from harvest weather delays may offer some support, although this is likely to be short lived in our opinion. Disease issues continue to be a talking point although there is little evidence, right now, to suggest that this is a widespread issue. The improvement in crop condition is probably more important to price direction than disease discussion.

• Egypt’s GASC has issued a tender for early October shipment wheat, the results will be available for part two of today’s update. Expectation is for Black Sea origins to continue to be competitive.

• Evening update:

• The markets have traded lower into the close with sharp losses across the board. Soybeans shed a touch over 1% whilst the grains gave 3% back to the market. The drivers include Ukrainian peace talks, crop condition reports as well as continued analyst’s reports supporting yield estimates.

• Reuters forecasting arm, Lanworth, has estimated the Brazilian 2014/15 corn crop at 79 million mt, an increase from 78.6 million mt year on year and soybeans at a record 98 million mt, an increase from 85.7 million mt year on year.

• Brokerage and analyst Allendale Inc has pegged the US corn crop at 14.409 billion bu and a yield of 171.9 bu/acre. Their soybean estimates show the crop at 3.884 billion bu and yied at 46.4 bu/acre.

• Intl F C Stone’s latest figures forecast US corn output at 14.595 billion bu, yield at 174.1 bu/acre, soybeans at 4.0 billion bu with yield 47.6 bu/acre.

• The USDA’s August data showed corn at 14.032 billion bu and 167.4 bu/acre, and soybeans at 3.816 billion bu and 45.4 bu/acre.

• In a slightly contrarian move, Lanworth trimmed back its US output estimates for corn to 173.7 bu/acre (down 0.8 bu/acre) with output down 200 million bu to 14.6 billion bu.

• Next week we will receive the USDA’s September report, and many (including ourselves) would expect to see an upward revision in their numbers – time will tell, as always.

• Egypt purchased 120,000 mt of wheat, with France and Romania sharing the deal. This is the first French win since January, and (obviously) the first this season as rain damage during harvest has reduced wheat quality to the point where many were questioning whether any sales would be concluded to Egypt at all this year. Of interest was the sheer volume offered by France, five Panamax size vessels, all at GASC spec, but most importantly $4-$12/mt below the cheapest Russian offer. Moisture allowances will see prices reduced a further $5/mt (plus costs) and our reading of the situation is that France has now woken up and smelled the coffee, realised they are deep in the “doo-doo”, and playing catch up in their export efforts. This may week have a knock on effect by troubling Russia, who will (like us) be shocked by the price levels of today’s business. What price the next tender? Egypt has played a very cute game by picking off the two cheapest offers today, leaving all others out in the cold.

• Closer to home, Stratégie Grains have released their latest oilseeds report which includes an upward revision in EU rapeseed output from a month ago. Their latest output figure stands at 23.2 million mt, a 300,000 mt increase, whilst sunflower seed output is increased 400,000 mt to 8.6 million mt.

• Midday comments:

• The morning after the holiday weekend started with weaker grains as rain across Kansas proved a bearish force and provided Russia and Ukraine leave their ports open for business, their exports should help to keep world prices low and possibly lower. Thursday’s CBOT price gains, which were not sustained into the close, were fully given back (and more) on Friday. Regardless of other issues, it it the Russia/Ukraine issue which grabs the attention, and Ukraine says it is seeking NATO protection following what both Kiev and its western allies describe as open participation by the Russian military.

• The IGC forecast 2014/14 global wheat output at 713 million mt, an increase 702 million mt Monday, the USDA’s latest figure is 716.09 million mt for comparison purposes. The key drivers for the IGC’s increase include larger output in Russia, EU and China as lack of significant weather issues has left crops to develop well.

• Corn markets this morning remain in something of a sideways pattern, traders are viewing it as cheap in relation to alternatives. Thursday’s gains aided by the Russia/Ukraine inspired wheat gains were largely given back on Friday. There has been positive weather over the weekend in key corn growing regions, and the IAG crop tour across some of the biggest corn producing states has seen what has been describes as “massive yield potential”.

• The IGC 2014/15 global corn forecast came in at 973 million mt, an increase from 969 million mt month on month, compared with 985.39 million mt as forecast by the USDA in its latest report.

• Soybeans posted early gains as the markets reopened after the holiday weekend as some were suggesting that there was too much rain across Iowa and Minnesota, but our belief is that the warmer, wetter trend is almost ideal and adding to yield rather than detracting from it. The longer term outlook feels even more bearish as S America looks set to add to planted acres (at the expense of corn).

• Evening update:

• Data today shows Ukraine’s 2014/15 season grain exports to date at 5.01 million mt, of which wheat accounts for 2.75 million mt, barley 1.89 million mt and corn 377,000 mt, and compares with 3.3 million mt year at the same time last season. This gives little reason for concern right now, so what price “risk premium”?

• As the US awoke and returned to trading desks following the holiday extended weekend break, it is probably fair to report that some surprise exists that grains are down and soybeans are up! Most expectations were the reverse basis Russia/Ukraine, yet wheat has posted double digit losses and soybeans double digit gains, the latter appears to be on the back of continued strong soybean meal demand.

• In general, there are some reports of money exiting the commodity space on account of poor returns, gold, silver and crude oil all posting sharp losses and risky assets have lost some of their former shine.

• Weather reports continue to suggest a lack of cold/freeze risk into September 18 or 20, which will keep the bulls at bay, and early harvest data from the Delta and Gulf states remains record large and well above expectations. As an example, Louisiana and Mississippi soybeans are reportedly yielding 65-90 bu/acre leading to a question as to whether national yield could hit 49-50 bu/acre by the time harvest is done. Early corn yield reports across the Delta and S Midwest are equally impressive with 190-240 bu/acre yields being reported, well above producer expectations.

• Closer to home, despite fresh one year low in the € Paris wheat ended with little changed. Anecdotal evidence is suggesting that Swedish/Baltic/Polish wheat is trading specifications equivalent to Algerian requirements at substantial discounts to French, which must be cheesing off the French–big time! The next Algerian tender will be at telling one, whether Algeria supports its long time ally, or price – we will watch with interest.

• In corn, closer to home, Ukraine premium decline is significant, jeopardising US exports. Given the likely US harvest in the US this development must come as a worrying development to US producers, exporters and (maybe even) government forecasters!