• CBOT markets have been mixed today and corn closed a touch lower whilst wheat, soybeans and soybean meal closed higher all in low volumes. It would seem that index fund rolling and rebalancing has commenced today and a substantial volume of corn were purchased towards the close lending some support. The roll/rebalance has not impacted grain or soybeans to any degree.

• January soybeans and products contracts expired today with little in the way of fireworks as much of the position had already been unwound in earlier trade. With March now being the “front month” contract we would expect to see limited upside from here on in; there appears little in the fundamental arena to suggest that soybeans need to be priced above $13.20/bu.

• In Brazil, private agricultural consultants, AgroConsult, have estimated the 2014 Brazil soybean crop at a record 91.6 million mt, which is an increase from December’s estimated 90.7 million mt. Their corn estimate gee slightly to 76.2 million mt from 76.1 million mt. AgroConsult actually tour and survey crops rather than conduct desktop research, and as such their figures carry a reasonable degree of credibility. AgroConsult added that as much as 42% of the Brazilian soybean crop could be harvested by the end of February, making early stock available to crushers and exporters alike. The 2013/14 plantings were some three weeks earlier than in 2012/13. Some other forecasters have estimates as high as 93 million mt, and it should be remembered that only last weekend the Agricultural Minister stated that the soybean crop could “easily” exceed 95 million mt. One thing appears to be certain, and that is that the Brazilian crop is going to be a big one!

• Further news emerged today that China has rejected more DDGs overnight and active testing for non-approved MIR 162 continues and rejection follows positive test results. Trade in corn and products into China from the US has slowed significantly.

• We are still looking for lower prices, just in case anyone was confused!

• Markets have shown a degree of strength today following Friday’s late announcement that Egypt had purchased one cargo of US soft red wheat (the first US sale to Egypt of the marketing year), which triggered some short covering. Weekly soybean export inspections were above expectations and rain prospects in southern Argentina have been trimmed back a touch. Following the decline in markets last week these pieces of news were all it took to set the bulls running, although it is premature (and significantly so) to suggest there is anything bullish in the longer term outlook. Producer selling on the back of elevated prices is very evident and will likely cap the upside.

• Argentina has approved 1.5 million mt of wheat exports with the prospect of a further 500,000 to 1 million mt to follow. Half a million tonnes is scheduled for immediate release, the balance to be shipped at a slower pace according to reports. The intention by Argentina is to prevent a rapid drawdown on domestic stocks as was the case in mid to late 2013.

• Fears that Russia may be about to bear the brunt of freezing conditions, which could leave winterkill a serious issue following abnormally mild conditions, appear to be receding. Snow is forecast ahead of the cold snap, and that would provide an insulating blanket to help protect crops. Saratov, a key wheat producing district in the Volga region, is expecting –18℃ (–1℉) later in the week, this is some 5 degrees warmer than previously expected. Many have raised the question of wheat hardiness after delays in planting although the mild conditions have assisted crops reach dormancy. Autumn precipitation across Russia and Ukraine winter wheat zones has been close to non-existent although it has improved over the last couple of weeks. Southern Russia, where the majority of wheat is grown, is experiencing drought conditions. The last month has accrued a 30 mm deficit and 67 mm deficit over the last three months in Stavroplo, Krasnodar and Rostov.

• The soybean harvest in Brazil is under way and picking up pace. Early planting, despite dry conditions, was a feature as farmers were keen to get an early crop in an attempt to be able to plant a second follow on soybean crop. Some local analysts have suggested that the yields in Mato Grosso could be the best ever.

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

Weekly Update 10 January 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 Jan 14 Recap

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

USDA Jan 14 Recap Stocks – Plantings

• Brazil’s CONAB has today released its latest forecast for 2013/14 corn and soybean output. Unsurprisingly, given favourable weather conditions, they have raised their estimate for corn to 78.97 million mt, from December’s figure of 78.78 million mt. The USDA’s latest figure stands at 70 million mt. For soybeans their forecast is 90.33 million mt, up from 90.03 last month; the USDA’s last estimate stands at 88 million mt. Possibly more telling is the widely quoted comment that the soybean crop could “easily” exceed 95 million mt with yields exceeding official estimates.

• Following a prolonged absence from the headlines, there is a reported fatality attributed to H5N1 bird flu. The victim was travelling to Canada, from Beijing in China when symptoms appeared. Chinese authorities are looking into the case, although first comments suggest that there is no other evidence of the virus in Beijing. As of mid-December there were 648 confirmed human cases of the disease of which 384 had been fatal. Whist it is reported to be difficult for humans to catch the disease, there are fears of mutation and pandemic.

• Following yesterday’s market decline we are seeing follow through selling, particularly in the grains (corn and wheat) which has followed through in both London and Paris. The decline in CBOT is much more marked than in either London or Paris, the soft red wheat price already around $20 below French. The simple explanation for the price dislocation being that the US wheat is “locked” due to the call on export facilities from soybeans and corn, added to which the bumper Canadian wheat crop is flowing into the US. There is an estimated 8 million mt combined US and Canadian exportable surplus, which is struggling for outlets.

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

Wheat: 294,800 mt which is within estimates of 200,000-500,000 mt.
Corn: 155,200 mt which is below estimates of 200,000-700,000 mt.
Soybeans: 156,200 mt which is below estimates of 450,000-950,000 mt.
Soybean meal: 62,800 mt which is within estimates of 50,000-175,000 mt.
Soybean oil: 33,500 mt which is within estimates of 0-60,000 mt.

• The above export figures represent season lows for soybeans, soybean meal and wheat. Front month markets in corn and wheat (Mar ’14) have posted contract lows whilst Nov ’14 soybeans have been flirting with (and broken below) the $11.00/bu level.

• Brussels has granted another big week of wheat export licences to start 2014 in the same manner that the 2013 season has progressed. The weekly total hit 734,260 mt, which brings the season total to 15.8 million mt. This is 4.75 million mt (42.9%) ahead of last year.

• Looking forward to Friday’s USDA report it appears that most market players are expecting US soybean and corn crops to be revised upwards. It is probably fait to say that these expectations are already factored into markets, and no more so than in corn in recent weeks whilst soybeans have also seen lower prices since late December.If the USDA actually confirms the trade’s expectation it may not transpire into additional bearish price action. However, if we see an unexpected reduction in the soybean crop, the bullish upside could well surprise, although we would expect it to be of limited duration.

• The average trade estimate for the US 2013 corn yield is 161 bu/acre , above the last USDA figure of 160.4 bu/acre. Assuming acreage is unchanged we are looking g at an output in excess of 14.05 billion bu. For soybeans, the average trade estimate stands at 43.2 bu/acre giving a 3.27 billion bu crop. Dec 1 stock numbers are equally estimated at relatively high levels; corn at 10.77 billion bu and soybeans at 2.17 billion bu. If correct, the corn number will show growth, year on year, of almost 2.75 billion bu.

• Following the holiday break we have today received the update on Brussels’ wheat export certificates covering the last two weeks of 2013. True to the run of form so far this season, they did not disappoint. The two week total comes to 1.072 million mt, which takes the season total to just over 15.1 million mt. This is 4.4 (41.3%) million mt ahead of last year and points more strongly towards a full year figure in the 28 million mt ballpark. Higher consumption of both barley and maize (corn) in feed rations, displacing wheat and making it available to be exported, supports the large export volume theory.

• In other news it has been suggested that China is accepting some cargoes of corn and DDGs despite positive test results for the non-approved GM trait, MIR 162. The slide in US DDG prices, which reached as much as $30/ton, has seen some evidence of a reversal with prices clawing back some $10/ton.

• Looking forward we are awaiting Brazil’s CONAB estimates on both corn and soybean output, scheduled for release on Thursday. A soybean number of close to 90 million mt for Brazil (and over 55 million mt for Argentina) is widely expected. Corn output also looks good with continuation of non-threatening weather conditions.

• Our conclusions remain unchanged.

• Thin markets have been the order of the day, no doubt prompted by the imminent USDA report as well as the start of the index fund roll which will start tomorrow (Wednesday). Uncertainty over the size of index fund rebalancing is leading to more caution than usual and a marked reluctance to take on additional risk.

• Talk of heat in Argentina is believed to be somewhat overdone and cooler conditions and rain are moving south providing some relief from warm and dry weather which has existed in recent weeks. Early yield data from Brazil’s Mato Grosso and Goais is reported to be at record levels, adding strength to the 90 million mt plus estimated output discussions. Current and forecast weather in Brazil will do little to reduce output in the near term and we continue to look for prices to come under pressure.

• Late Friday saw the results of the Egyptian tender, which raised some eyebrows in view of the size of the business transacted. A total of 535,000 mt saw 355,000 mt awarded to Russia, Ukraine and Romania (55,000 mt, 120,000 mt and 180,000 mt respectively) with the remaining 180,000 mt going to France. Unsurprisingly we have seen a degree of support in wheat markets following the tender although it remains unclear as to whether or not Egypt is now done for the season. Total Egyptian purchases (by GASC) this season have reach over 3.5 million mt, which compares with just under 3.5 million mt last year and over 5 million mt in 2011/12. It has been suggested previously that former President Morsi left office with wheat stock levels lower than desirable although we are unlikely to get formal confirmation of this. If that was to be the case, we could well see further tonnages being sought by Egypt in coming weeks. As always, time will tell.

• Weekend reports from Egypt state that stocks are sufficient to last until late April, and previously a six month wheat  stockpile was stated to be the objective.

• Further reports from Reuters inform us that more corn rejections have occurred following discovery of the non-approved GM event, MIR 162, and the likelihood of further rejections appears to be on the cards. One of China’s “official” new agencies reports that over 600,000 mt of corn and products have been rejected by the nation. Weakness in China’s feed demand must surely be coincidental to the recent discoveries (or is that just a malicious thought on our part?).

• Extreme cold weather in the central US has raised fears of winterkill in wheat and farmer selling appears to be drying up quickly. Our belief, at present, is that this is likely to be limited and not a significant issue. In advance of this week’s USDA report the news, coupled with the Egyptian trade, has led front month CBOT wheat back over $6.00/bu; how long it stays there remains to be seen.

• S American weather remains kind with regular rains forecast across Argentina and S Brazil with a southern directional trend , which will favour the drier S Argentine crop regions.

• We still favour selling into rallies given our longer term view that global restocking is under way.

• We return to another holiday shortened week to witness a sharp fall in CBOT soybeans and products on the first trading day of 2014, triggered by non-threatening weather in S America together with weak, and weakening, technical signals that have sparked off a degree of selling taking prices lower. Front month (Mar ’14) wheat in Chicago also closed below the psychologically important $6.00/bu level on Thursday, which could also pave the way to lower levels. Early trade on Friday witnessed a degree of recovery, as might be expected following Thursday’s sharp losses.

• The run up to next week’s important USDA report is also another factor that, in conjunction with weaker fundamental and technical pictures, is allowing markets to decline.

• Major news items are somewhat lacking, however over the holiday period it has been confirmed that China has rejected a number of consignments of US DDGs following the detection of the non-approved GM event, MIR 162. This has effectively halted further sales and prices in the US have dropped by almost $30.00/ton. The impact upon protein markets has been felt with some reduction in soybean meal and corn demand for livestock feeding as DDGs are pricing themselves into what was a price stressed feed ingredient market place. This particular fact has not yet made its presence felt in the EU, where feed manufacturers and livestock producers alike would welcome anything that brings nearby protein supplies down in price. For what it is worth we hear that approval of the MIR 162 trait, by Chinese authorities, will be either late in Q1 or possibly in Q2. Clearly there is plenty of time for the issue to continue to disrupt international trade before “normality” is restored!

• Egypt’s GASC has once again returned to the wheat tender market with two new tenders, shipment in late Jan ’14 and early Feb ’14. The results of the tender are scheduled to be released later today. A slight change to GASC’s Russian terms on this occasion will permit offers down to 55,000 mt, as opposed the usual 60,000 mt cargo limit which they usually insist upon.

• To conclude this brief return from the holiday season we continue to look for lower levels. The old adage that “big crops get bigger” will, no doubt, be tested in next week’s USDA report, which is scheduled for release on Friday. Interestingly the outflow of monies from commodity funds during 2013 is reported to be a record $46.1 billion (according to Bank of America). The year has seen a number of high profile exits from the agri-commodity trading space due to “relative lack of financial attractiveness”. Clearly, this stance cannot be construed as supportive and adds to our longer term outlook.

• Today, albeit in a holiday shortened week, saw markets in Chicago display some significant losses on the first day of the new year. The soybean complex saw soybeans lose up to 1.9%, or $0.25/bu, and soybean meal in the front month drop over 3.1%, $13.60/ton although these closing levels were a recovery from the lows of the session.

• Improved S American weather and weak technical signals both triggered the selling. Mar ’14 soybeans now look set to test $12.56/bu and possibly $12.33 in the run up to the January USDA report. Mar ’14 wheat closed below the psychologically important $6.00/bu level although corn held $4.20/bu. The outlook for wheat, following its lower close, also suggests further bearishness in coming sessions.

• China’s Min of Ag has reported an excellent start to their wheat growing season, supposedly the best in the last eight years. The good start is expected to be tempered slightly by warmer than average temperatures and lower rainfall in key producing regions. Planting is all but complete with acreages reported to be similar to, or greater than, last year.

• Finally, Egypt’s GASC has once again returned to the wheat tender market with two new tenders, shipment in late Jan ’14 and early Feb ’14. Results are expected to be known tomorrow (Friday). A slight change to their Russian terms on this occasion will permit offers down to 55,000 mt, as opposed the usual 60,000 mt cargo limit which they usually insist upon.

• Markets are trading lower in subdued volume as traders shun additional risk prior to the New Year break. S American weather continues to improve and US DDG’s continue to fall in price by over $20/ton following China’s rejection of material following the discovery of the non-approved GM event, MIR 162, in a number of containers. New trade to China is currently non existent and material will have to find new homes. The additional supplies will reduce US domestic demand for soybean meal and there is evidence of a weakening cash basis as a consequence.

• It is interesting to note the price of soybeans, in relation to corn, is near historic highs. Soybean growers the world over should take note, particularly as the Brazilian harvest is getting under way.

• We would anticipate further liquidation of long soybean positions in advance of the USDA’s January report as expectation of additional soybean and corn yield is a very real threat.

• We would like to thank all our subscribers for their interest and patronage during 2013 and wish one and all a safe, happy and prosperous New Year.