The first piece of news to report today is US crop progress as follows:
US CORN CONDITION- 24 PCT GOOD/EXCELLENT, 24 PCT WK AGO, 52 PCT YR AGO -USDA
US CORN – 88 PCT MATURE VS 76 PCT WK AGO VS 57 PCT 5-YR AVG -USDA
US CORN – 39 PCT HARVESTED VS 26 PCT WK AGO VS 13 PCT 5-YR AVG -USDA
US SOYBEANS CONDITION- 35 PCT GOOD/EXCELLENT, 33 PCT WK AGO, 53 PCT YR AGO -USDA
US SOYBEANS – 73 PCT DROPPING LEAVES VS 57 PCT WK AGO VS 59 PCT 5-YR AVG -USDA
US SOYBEANS – 22 PCT HARVESTED VS 10 PCT WK AGO VS 8 PCT 5-YR AVG -USDA
US WINTER WHEAT – 25 PCT PLANTED VS 11 PCT WK AGO VS 27 PCT 5-YR AVG –USDA
Clearly both soybeans and corn are well advanced as evidenced by harvest progress which is at a pace that can only be described as very rapid, and the winter wheat crop is also on target to match five year average planting pace. Expectations are for harvest pace to continue along current lines and finish early.

We could pontificate on early yield data but prefer to await more reliable information at this time – watch this space!

Russia is scheduled to hold a food security meeting later this week which could well pave the way to a clearer direction on their exporting future. The ongoing rise in their domestic flour and wheat prices is bound to have some bearing upon the decisions made.

Australian weather conditions continue to elevate concerns for their final wheat output which is being put at sub 20 million mt by some forecasters.

The UK could well be turning to the US for imports this season as the poor harvest looks as if the domestic balance sheet will be unable to satisfy demand this season.

• A further day of price declines across the soy complex, corn and wheat as fund and producer hedge selling continues to pressure prices.

• Volume trade appears to remain reasonably high.

• US soy and corn harvest pace continues well.

• Soybean yields contain conflicting data with both better than expected and disappointing figures. Next week should provide more definitive data when a greater acreage is harvested.

• US export demand is being stimulated by the current price decline – a position which the S&D can not afford.

• We would expect to see forthcoming wheat tenders featuring EU and US supplies in the near future as other origins move upwards in price.

• India raising concerns over rising prices and could potentially  restrict export activity.

• Australian wheat crops remain pressured by continued dry conditions.

• Early Argentine wheat yields are reported to be disappointing.

• Given the dependence of global wheat markets on international trade the news from Australia, Argentina and India does not look good for the balance sheet.

Another day of profit taking followed yesterday’s rally with the soy complex taking the brunt of the drop in prices. We have yet another day with no real fresh news and consequently the market feels somewhat directionless. The falls are not sustained and chop both ways in a sloppy decline.

US weekly export sales were poor in corn with under 70,000 mt, well below the estimated 350 to 400,000 mt; wheat was well within estimate and soybeans were at the upper end of expectations with soy products both above estimates. The key here is that soybeans show no sign of rationing and the current price drop is simply encouraging further consumption which can not be sustained. Consequently we anticipate price strength before harvest is completed, particularly in soybeans.

Yesterday’s wheat tender by Iraq highlights the structure of pricing on a global scale, with Russia offers succeeding purely on a freight advantage and only marginally below both Australian and US offers. Our view that Russian offers will soon cease to feature in export markets appears to be closer than before.

At home ADAS’s latest figures suggest that the UK output is at a 20 year low despite the fact that harvest is not yet finished. Estimated output sits at 6.9 to 7.2 mt/ha subject to final figures from yet to be gathered crops in northern regions. This is a reduction from previously estimated levels of 7.1 to 7.4 mt/ha and features particularly low specific weight grain. The ADAS figure is broadly in line with the figures released by Strategie Grains last week.

As the US markets draw towards a close we note that news of better than expected soybean yields abound, dragging values lower. Similar news circulates on corn yields with the same price impact. Fund selling appears to continue as does selling by elevators to hedge their intake and this weighs on prices.

We continue to restate our dogged view that the current price decline is not a reflection of long term fundamental supply demand change, and that we will see new price highs before the season is over.

Has the downside in ag markets reached an end? With “turnaround” shifted from its usual Tuesday by a day to Wednesday all the key crops ended today’s session in positive territory. Once again though, there has been little in the way of fresh news. China have continued to sell off state soybean reserves, as they have for some time now, and estimates (for what they are worth) suggest they have a couple of months worth of stocks at their disposal. It must be remembered that there is no corroborative data to support these figures however.

It would appear that selling activity by funds has dried up today, hence the reversal of the trend of the last few days, and some fresh buying has been apparent as the market hit a technically oversold position, albeit in light volumes.

It has been reported that Russia have made an additional sale of wheat, this time 150,000 mt to Iraq for delivery in Nov ’12. Their ministry have tightened the range of their 2012 grain crop estimate to 72 to 73 million mt whilst estimating the season’s exports in a wide 10 to 14 million mt.

Early US harvest reports indicate better than anticipated yield in soybeans although, as we have previously said, more data is necessary to establish a credible pattern.

Oil World has published their S American soybean production estimates for 2012/13 as follows:
Brazil 56 mmt vs. 66.4 yoy
Argentina 56 mmt vs. 40.5 yoy
Paraguay, Uruguay and Bolivia also qualify for improved estimated production although overall significance is relatively small.

Markets have again continued in liquidation mode led, this time, by Chinese futures prices dropping overnight. There has been little, if any, significant fresh news – and as we said last time – lower prices will trigger consumption which the market, from a supply perspective, can ill afford.

Harvest is in full swing in the US and in addition to fund liquidation we are seeing physical deliveries by farmers to their elevator which is triggering futures selling (as a hedge by the elevator) which adds to the current downward pressure right now.  We are seeing a short term pressure triggered by an abundance of supply which will not offset the longer term fundamental supply tightness.

We maintain, if a little stubbornly, adding to cover rather than falling into the trap of believing the market is in free fall is the way forward.

S American crops will be required in abundance in order to restore global stocks to adequacy, and the dry Australian picture right now does not add to confidence levels right now.

If the market behaves in the way we expect, we believe that we will see a “low” at some time in the very near term which may well be viewed enviously, in coming months, by those who missed it.

CBOT markets started the day on a weak note which continued in heavy volume trade throughout the session. Favourable harvest weather, profit taking from “tired bulls” and a weak technical chart pattern all conspired to hit grain and soy values sharply. Friday’s weak soybean performance and the previously viewed bullish QE3 background started to lose lustre.
It seems the bulls are now looking for the corn and soybean harvest reach 50% before they embark on further buying sprees. Some are fearful of the upcoming stock report which they fear may well include newly harvested corn and make the old crop stocks look larger that they truly are.
Corn was reported at 26% harvested, up from 15% a week ago and 8% at this time last year; soybeans are 10% harvested and progress in both crops is expected to be rapid.
One thing seems certain, and that is if corn priced drop much further there will be no effective demand rationing, indeed it might even stimulate consumption which the balance sheet simply can not afford; hence our outlook. We still view this price dip, sharp though it is, as an opportunity to add to cover at better prices than seen in recent times.

Interestingly we hear that the US EPA last Friday said it would expand its bio-diesel mandate to 1.28 billion gallons from the 1.0 billion which is in place for 2012. This begs the question, “do they have any intention to lower the ethanol mandate as requested by several States?” Clearly, it would seem that this will not be answered until after the November election is decided.

Another, better, week has passed from the perspective of the UK farmer as combines have been working long hours to gather the rain delayed and weather damaged wheat harvest. Empirical evidence is pointing continually to poor specific weights, reduced yields and the need for millers to turn to overseas markets to source better quality whilst, at the same time, reducing their specifications somewhat for what little UK grain they are prepared to purchase.

The most significant news is probably that of the two Egyptian wheat tenders this week bringing their five-week purchase total to some 1.7 million tonnes. Tuesday’s tender saw Russia awarded a reduced 60,000 mt prompting speculation that their offerings were running low; however today’s tender saw Russia awarded 120,000 mt out of the total 235,000 mt, albeit at prices some $6/mt higher than two days earlier. It seems that the Egyptians are looking to capture tonnes before the Russian “pot” runs dry. Interestingly, France has picked up 180,000 mt this week as the Russian / Ukraine / Romanian supplies begin to see prices escalate – probably reflecting overall availability.

The much-anticipated USDA report yesterday was preceded by market prices easing back in advance of the announcement because traders, and the funds in particular, were fearful of what figures might be published. The initial reaction to the report was to see prices dip further; particularly corn where the forecast yield was only marginally reduced from the August estimate. However, the market has regained some of the losses as closer inspection would seem to indicate an extremely tight end of season stock position unless the much discussed price driven demand rationing takes place. Given this outlook, the lack of consumer cover and the reluctance of farmers to sell we continue with our bullish stance and view this pullback in price as temporary and an opportunity to fill gaps and extend cover where appropriate.

From a soybean perspective, the report was “bullish” but could be critiqued from a number of perspectives. The pod weight used to establish yield was left at an “average” level which feels wrong given the dry conditions where it would seem more likely that a below average pod weight would be harvested. With this in mind we would not be surprised if actual yields fall below USDA estimates and the October report shows further cuts. Overall we feel that the outlook for soybeans remains bullish and dips, if they appear, should be viewed as buying opportunities.

Strategie Grains have reduced their estimate for EU corn and wheat output adding pressure to global prices. Corn output was trimmed substantially by 4.3 million mt to a five year low of 53.5 million mt as the persistent hot and dry conditions in south and central Europe last month led to poor grain filling. This leaves the crop some 19% lower than a year ago and leaves the way open for imports to rise to over 8 million mt. Interestingly, this estimate is 3.8 million mt below yesterday’s USDA estimate.

Wheat estimates from Strategie Grains also cut 1.7 million mt from the EU harvest to 123.6 million mt. The commentary continued with a conclusion that exports would have to be cut and usage curtailed if minimum “pipeline” stock levels were to be maintainable. All in all, this can only be construed as “bullish” for prices going forward and we would advise any gaps in cover to be filled on the current price dip.

News today in the aftermath of the USDA’s report includes a further Egyptian tender, this time for 235,000 mt for Nov ’12 shipment. Russia was awarded 120,000 mt, France 60,000 and Ukraine won the final 55,000 mt. Russia managed to hold on to sales due to its competitive freight position but observers believe the pace of exports is losing its edge. The winning Russian bids were some $6/mt higher than the last tender just two days ago. Clearly Egypt are keen to get tonnes on board before that competitive edge disappears totally. The total Egyptian purchases in the last five weeks amounts to some 1.7 million mt.

Harvest pace in the UK has picked up in the recent spell of better, drier weather permitting some “catch-up” to take place. Whilst acres have been cut it has not led to improved quality and we continue to hear of low specific weights and claims against contract quality. New contracts are being negotiated on a reduced specification to avoid the necessity for large claims and millers are reducing their purchasing qualities to gain supplies at home whilst at the same time seeking better quality supplies from overseas to supplement their grists.

Strategie Grains have reduced their estimate for EU corn and wheat output adding pressure to global prices. Corn output was trimmed substantially by 4.3 million mt to a five yea flow of 53.5 million mt as the persistent hot and dry conditions in south and central Europe last month led to poor grain filling. This leaves the crop some 19% lower than a year ago and leaves the way open for imports to rise to over 8 million mt. Interestingly, this estimate is 3.8 million mt below yesterday’s USDA estimate.

Wheat estimates from Strategie Grains also cut 1.7 million mt from the EU harvest to 123.6 million mt. The commentary continued with a conclusion that exports would have to be cut and usage curtailed if minimum “pipeline” stock levels were to be maintainable. All in all, this can only be construed as “bullish” for prices going forward.

First glance would have one thinking, “hmmm, this is bearish!” However, the market in the last few days had already factored in the “not bullish” report to a fair degree and, as such had less room in which to tumble. End of season stocks are nowhere near as comfortable as we would like, indeed our discussion with colleagues in the USA tonight has left us distinctly uncomfortable in terms of adequacy of corn and soybean stocks and certainly we do not feel flush with wheat levels either. The question remains as to when rationing will kick in to extend stocks sufficiently to last until the next harvest, which needs to be a good one to allow for some degree of stock replenishment.

Buried in the detail of the report are elements which seem downright incongruous, soybean pod weight being one. The figure used is an average which feels wrong in such a drought stressed year. We would expect output to drop significantly if and when the USDA revises this particular element of the report next month.

Additionally, there are areas of the report where we are not in agreement with the USDA and believe there will be some significant adjustment in the October report. Examples include corn harvested acreage and Australian wheat output to name but two.

Having said all that, it would be overly arrogant to denounce the report as wrong; it is just that we believe there are a number of holes which seem all too evident. It feels like the USDA has “dressed up the house to sell it”, so, “caveat emptor!”

USDA comment 12 Sep 12

The market started the day quietly with further long liquidation ahead of tomorrow’s USDA report. It would seem the bulls are tired and inclined to reduce their position size. Some 15% of the US corn crop and 4% of soybeans was harvested as of Sunday; however the view is that insufficient data is available to predict yield with any accuracy.

ABARES reported the Australian wheat crop at 22.5 mmt, lower than their previous 24.1 mmt and well below the USDA’s last 26 mmt. Dry conditions in W Australia are reducing yields by nearly 40%. However, export projections for 2012/13 remain upbeat based upon existing stocks remaining from the 2011/12 harvest.

Egypt once again stepped into their buying boots and picked up another 235,000 mt wheat, this time Russia was only offering 60,000 mt which was taken up by Egypt. In last week’s tender Russia offered 420,000 mt; are we at last seeing the beginning of the end of Russian exports? France picked up the largest tranche of business securing 120,000 mt. In total Egypt have made purchases of close to 1.5 million mt in the last month. The next tender will be watched with great interest to see if Russia make any price competitive offers of significance.

Finally, we received the following news item from Reuters today which is added in full. This could be either extremely significant or fizzle out to nothing …….

11 September 2012 18:48

According to a Reuters information, the European Commission might have drafted a new rule proposal, not official yet, which would limit by 2020 to 5% in energy the share of 1st generation biofuels, i.e based on agricultural feedstock used in food consumption. The draft also proposes to stop all forms of subsidies for biofuels after 2020. Finally, it defines new CO2 emission factors for several biofuel types, which would be unfavourable to biodiesel.

The current legislation gives a 10% incorporation mandate in energy for biofuels, whatever the feedstock. The Commission proposal to limit at 5% the share of 1st generation may thus strongly put this objective into question, by lack of alternatives, as 2d generation biofuels are not expected to be widely available by then.
The share of biofuels is considered at 4.7% in 2011, and is expected to reach 5% in 2012 (mostly first generation biofuels). If adopted, the new proposal would thus bring to a halt the biofuel market expansion, and most particularly biodiesel, which currently represents 70% of biofuels used in EU.

It is nevertheless better to remain cautious about the future of this proposal, which is for the time being not public. If it were to become official, it should in any case be adopted by the different EU governments and by the EU Parliament.