• CBOT grains started the week mixed with soybeans and meal taking a stronger turn in advance of the USDA crop report tomorrow.

• In terms of fact based data, it would appear funds were adding to soybeans, meal and corn in moderate volume. China continued to be a buyer of soybeans although the trend would seem to show the buyer’s desire to secure “optional origin” in order to switch to S American product when available. If Brazilian weather plays ball we could well be seeing shipments in the second half of February, which could well reduce overall US shipment volumes.

• S American weather continues to be favourable, dryer in Argentina to assist planting and rains across Brazil to assist soybean crop development. It seems difficult, right now, to imagine anything other than massive S American crops in the coming harvest.

•  Other news has been thin on the ground as the market awaits tomorrow’s USDA report.

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Weekly Update 6 December 2013

• Hot on the heels of this Tuesday’s GASC purchase for Egypt, from Romania, which we suggested might struggle to get executed, we hear today that the contract has been cancelled by the buyer due to “problems with the seller’s documents”. Apparently GASC declined to comment upon the situation. The fact that front month CBOT wheat is down $0.14/bu (basis Tuesday’s close to midday today) presumably has little to do with the matter!

• In Russia’s key southern wheat producing region conditions have grown dry over the past four or five weeks. Stavropol, Krasnodar, Rostov and Volgograd, which are the four key winter wheat producing districts, have also had subsoil moisture deficit as significant rainfall has been lacking since September. There is an expectation of some 1.5” of rainfall/snow which will ease crop stresses over the next few days.

• Argentina’s crop planting delays have left vegetative development in a worse than average condition according to latest satellite images collected in the latter part of November. Spring planting weather was cold and dry for some time delaying field work and planting and farmers have not caught up. Ministry officials claim that just 44% of corn and soybeans were planted by 28 November; full season, high yielding corn, is usually planted by the end of November although mid season, lower yielding, corn may still be planted through to end February. There are suggestions that farmers may switch unplanted corn acres into soybeans, which may be planted through to 5 January and still obtain high potential yields.

• Rumours of a reduced export tax on Argentine soybeans and products over Q1 2014 continue to circulate. However, getting the farmer to part with his estimated 13 million mt stockpile of soybeans in an effort to generate export sales revenue is proving difficult as fears of Peso devaluation and continued high inflation persist in  having just the opposite effect.

• In a further crop estimate update, Brazil’s AgroConsult has estimated the 2013/14 Brazilian soybean crop at 90.7 million mt, which is an increase from their last estimate of 86 million mt. The corn crop was also estimated higher at 76.1 million mt, an increase from 75.7 million mt.

• Brussels has again issued another big week of wheat export certificates at 600,995 mt, which brings the season total to 12.374 million mt. This is 3.556 million mt (40.3%) ahead of last season’s same date total.

• US weekly export data released today is as follows:

Wheat; 229,200 mt, which is below estimates of 450,000-550,000 mt.
Corn; 593,600 mt, which is below estimates of 850,000-950,000 mt.
Soybeans; 1,160,000 mt which is within estimates of 900,000-1,200,000 mt.
Soybean meal; 130,900 mt which is below estimates of 250,000-300,000 mt.
Soybean oil; 1,400 mt which is below estimates of 20,000-40,000 mt.

• Today’s biggest new was probably the report from StatsCan who released their latest crop estimates which included a record breaking all wheat output for 2013 at 37.53 million mt, which is way above estimates of 33.8 million mt, a 37.9% increase from 2012′s 27.21 million mt. Canola (rapeseed) at 17.96 million mt also set a record and is an increase of 29.6% from 13.87 million mt in 2012. Year on year gains of 10.32 million mt and 4.09 million mt for all wheat and canola (rapeseed) respectively are clearly significant and the only negative note that is being placed upon them is a question mark over the ability of Canada’s export infrastructure to cope. We believe the data, which we presume to be correct, can only be construed as bearish from a price perspective. The prospect of a global record large canola (rapeseed) crop in addition to large US and S American soybean output should not allow for significantly higher prices than we are seeing at present.

• Yesterday’s news of non approved US GM corn being found in material shipped to China has resulted in rejection of 121,000 mt of material according to Reuters. This volume amounts to the largest recorded rejection, is in addition to last month’s 60,000 mt rejection, and could well point towards a sharp decline in new business. There have been suggestions that the Chinese government may well wish to slow import pace in the face of stronger than anticipated supplies. The news must have shippers, who have close to 2 million mt of material on the way to China, somewhat nervous, and shipments will no doubt be subjected to stringent sampling and testing prior to being accepted at destination. The GM event, MIR 162 or Agrisure Viptera which is an insect resistant strain, has been in the US supply chain since 2011 and is approved in Japan, S Korea, Russia and even the EU who are slow in issuing approval of GM events. We consider the news to have longer term bearish implications for corn pricing, particularly if there are further rejections in coming weeks.

• It is probably evident from the above that we continue with our longer term bearish outlook.

• We have been catching up with the last two days of travel and updating information, and will be limited in commentary tonight.

• Today has seen some short covering which has left markets a touch firmer albeit on limited volume. As prices rallied it was noted that producer hedge selling became a feature from S America as well as US growers, a point we have made previously and one which, if followed through as we believe, will keep a lid on prices going forward.

• Arrivals of soybeans in China are creating some downward pressure on crush margins and there is talk of resale offers being made, added to which the discount which Brazilian soybean prices have in relation to US supplies from Feb ’14 onwards is likely to limit price hikes.

• Yesterday we heard of further discoveries by Chinese authorities of unapproved GM varieties in US corn shipments. The discovery is likely to result in rejection of the material, which was the outcome following the first shipment found to contain the non-approved variety.

• Australia’s ABARES have unexpectedly increased their forecast for 2013/14 wheat to the third largest on record at 26.2 million mt, a 7% increase on September’s estimate. The gains appear to be a result better rainfall in the southwest of the country. Western Australia, the largest wheat producing state, saw a 31% leap in forecast output which is offsetting reduced output in eastern states. In contrast, the Commonwealth Bank of Australia have only predicted the crop to come in at 23.6 million mt blaming Eastern Australian drought and claiming that despite improved conditions in Western Australia, they were insufficient to compensate for losses in New South Wales.

• Informa Economics has released its latest batch of agricultural crop forecasts for 2013/14, including an increase in the Ukraine corn crop at 28.5 million mt, which is a 1 million mt increase, Brazilian soybean output at 88 million mt is an increase from 86.7 million mt last month whilst Argentine soybean production is left unchanged at 59.5 million mt. The Brazilian corn crop is reduced by 0.5 million mt to 70.6 million mt.

• Egypt’s GASC was once again back in the market with a purchase of 60,000 mt of wheat for late Dec ’13 shipment, from Romania on this occasion. Interestingly several commentators are questioning whether, or nor, the contract will ever be executed. The price paid, on a C&F basis, was around $8/mt below last week’s purchase from France. Offers were absent from Russia, Ukraine and the US. It is expected that Egypt will tender again for Dec ’13 shipment, and given the time frame, it will likely be sooner than later.

• Whilst the US is shut today and turkeys are scarce the EU continued to trade with limited input to influence direction of prices. Argentina’s 2013/14 wheat crop was estimated by the government at 8.5 million mt, down from 8.8 million mt when trade expectations were in the opposite direction. As a consequence MATIF wheat took cover and ran for the hills settling higher. The government are using their figures as a base for export policy whilst the trade are looking for 10 million mt plus.

• Brussels issued a further big week of wheat export licences with 596,987 mt bringing the season to 11.77 million mt, which is 3.7 million mt (45.8%) ahead of last year. Extrapolated numbers bring us to around 30 million mt annualised exports.

• The latest IGC numbers, released today, show the global 2013/14 wheat crop at 698 million mt an increase of 2 million mt month on month and global corn also up 2 million mt month on month at 950 million mt.

• Markets resume tomorrow but are expected to be thin on the ground as many players will extend their holidays into the weekend.

• Today marked (yet) another wheat tender by Egypt’s GASC who purchased only 60,000 mt for late Dec ’13 shipment, this time from France. It would appear that the one US offer, which was for late Jan ’14 shipment, could well have been “in the frame” price wise to the tune of nearly $3.50/mt on a C&F basis. Russian offers amounted to a big fat zero, one Romanian offer that seemed to be cheaper but it appears there was an issue over freight which precluded the confirmation of business. Otherwise there were a number of additional French offers all at higher levels.

• Markets started the day higher, wheat receiving support from the Egyptian tender and this position has been maintained throughout the day. The soybean complex has moved lower as we approach the close and markets shut for Thanksgiving. Traditionally we see markets bullish into this particular holiday and we could well be setting or have set a “top” from which prices decline in coming weeks.

• The S American weather outlook remains favourable and there is talk that some US soybean export sales are being cancelled (or washed out) or switched to Brazil as forward prices begin to reflect cheaper levels. Both Brazil and Argentina have received beneficial rains and temperatures in Argentina look to be moving towards normal and crop prospects continue to look good.

• The technical outlook for soybeans has reached an extremely interesting point; Jan ’14 prices moved up to $13.41 today, the upper end of the current price channel stands at $13.42¾ and represents strong resistance. Prices today closed $0.23 below today’s resistance and adds to our confidence level on this specific point. Recent buying has created the price rally which began at $12.47 and we would now hope to see follow through selling to prove the “top”. Clearly we will either be proved right (or not) in coming days and weeks.

• As we approach the close this evening CBOT markets are nearly all trading lower in true “turnaround Tuesday’ style.The holiday shortened week already appears to be taking its toll as volumes appear to be less than normal.

• News that China has cancelled some 300,000 mt of US soybean sales has had a negative effect on the market despite additional new sales being reported. It was not long ago that we hinted at the possibility of cancellations as the “Armada” of soybean vessels approached Chinese ports. Added to almost ideal S American growing conditions, assuming the plague of caterpillars is dealt with, there seems more to encourage the bears than the bulls right now.

• Front month (Dec ’13) soybean meal has jumped up sharply as short covering has been a feature and the first notice day on the contract fast approaches. Once the exodus of shorts is done we would expect some “normality” to surface and price trends to move closer to our view, which is lower for those who may have forgotten!

• US crop conditions, in their last report until April next year, showed winter wheat rated as good/excellent 1% lower at 62% much as expected and was 93% emerged above the five year average of 89%. Corn was reported to be 95% harvested, which is above the 91% five year average.

• Key to price action moving forward is what level will Chinese demand for soybeans be, and when will it switch to S America. Next on the agenda will be can S American logistics cope with the demand – and this will be key particularly in the aftermath of last season’s vessel line up which extended to many, many weeks.

• The US is gearing up for its annual Thanksgiving holiday break and trade has already exhibited signs of reduced volume.

• EU wheat saw quite some volume of export trade over the weekend with a number of destinations seen as active buyers including Iran, who following their nuclear deal may well become a larger feature in coming months with some suggesting their requirements as high as 8 million mt rather than the USDA’s projected 4.5 million mt. On the bearish tack, India’s latest export tender could well surprise to the upside in terms of tonnage. Iraq purchased 200,000 mt of wheat from Canada (150,000mt) and Australia (50,000 mt).

• The French corn harvest continues to struggle in wet weather and lends unwelcome upward price pressure to the nearby marketplace.

• The ongoing pressure on prices is clearly driven by strong nearby cash demand from users (crushers, exporters fulfilling commitments, China etc) who were faced with tight supplies as the last crop year closed. The duration of the pipeline fill has come as a surprise to many, including ourselves. We believe that Q1 2014 will see global supply pressures take the lead in terms of market direction and prices fall, as we have suggested previously. Rallies remain, in our view, selling opportunities.

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Weekly Update 22 November 2013

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