The week started with markets showing a degree of firmness which evaporated later in the day with CBOT markets moving towards the close in a very lacklustre fashion as another “no news day” failed to provide additional fodder for the bulls.

Nonetheless, traders are waiting for Wednesday’s USDA crop production report. Average trade estimates of corn yield stand at 120.6 bu/acre, marginally below the last official estimate; average trade estimates for soybean yield are also marginally lower than USDA figures at 35.8 bu/acre. The market is likely to trade in a narrow, choppy range until the figures are released then, hopefully, find some direction once again.

Our discussions with colleagues closer to the action in the US speak of very poor early corn yields in some areas, admittedly the only reliable estimate of yield will come only when the crop is fully harvested.

We will be watching the progress of the US harvest with keen interest in coming weeks.

The past week has proved somewhat better for beleaguered UK farmers who have been struggling to gather in their rain delayed harvests. The key issues emanating from all analysis done so far on the UK harvest include the variability of both yield and quality with specific weight remaining the biggest single matter. Early data includes more of the better quality milling wheats, and final yield and quality results, when known, could well deteriorate as there will be a higher proportion of feed grains in the overall result.

An additional blow has emerged from recently harvested wheat with reports of loads being rejected at destination for high counts of DON, toxic fungal residues, which despite the high fusarium levels this season have not proved problematic so far.

As of Tuesday, UK was 55% harvested according to ADAS reports; this compares with an average of 85% and the forecast settled weather should see the pace of harvesting improve at last. In continental Europe the French and German harvests have shown marked improvement over the last couple of weeks and quality wheat is freely available and “capping” UK prices, which hit import parity recently. The likelihood of a greater volume of UK imports in the coming season has increased significantly as a result.

In key Black Sea exporting regions the Russian and Ukraine harvest outlook and forecasts continue to deteriorate. Latest IGC wheat output estimates place Russia at 41 mmt compared to 56.2 mmt last year and 53.2 mmt 2009-11 average. Ukraine fares little better with output estimated to be 13.0 mmt compared to 22.3 mmt last year and the 2009-11 average of 20.0 mmt. Last week’s news that there will be no curb to exports by Russia continues to “feel” wrong given their forecast output and current pace of sales.

In recent days we have seen Russia win two Egyptian tenders amounting to 360,000 mt both for shipment in October. Russian exports are currently running at around 3 million mt/month over the July to September period and their own self-imposed export volume of 10-14 million mt is fast being consumed. In addition Ukraine this week won a tender for 55,000 mt to Egypt, again for October shipment. It does appear however that Ukraine has residual stocks from last year to help sustain a higher export pace than would be possible from this years drought depleted crop.

Latest news from Egypt would indicate a further 240,000 mt October shipment and 60,000 November shipment tender award has been made to Russia in addition to the above.

Ukraine has picked up 55,000 mt for November shipment and Romania was awarded 60,000 mt each for October and November shipment. Clearly the world’s largest importer has its sights set on the best value grain and the Black Sea powerhouse is continuing to benefit.

When the Black Sea does finally dry up, in grain export terms, buyers will have to turn to EU sources then US as these fit the profile in price terms with EU prices remaining at cheaper levels than US supplies at least for the present time.

Attention is now turning to key southern hemisphere wheat producers Australia and Argentina where smaller wheat areas than last year have been sown. Despite their small percentage of global output (6.4%), the two accounted for some 23% of exports last season. Growing conditions will therefore be watched very closely given the potential bottlenecks that exist in northern hemisphere export corridors.

We continue to believe that markets have not yet completed their upside potential; the current dip in prices represents an opportunity to take further strategic cover if gaps exist or to extend cover into deferred positions.

Today has been quiet with markets drifting lower throughout the session and currently trading close to the lows. London and Paris have also been lacklustre in sympathy.

Once again there has been little in the way of significant news to change the overall market and it is probably this lack of fresh news to “feed the bull” which has led to some profit taking and easing in prices.

In the US Allendale have come out with their projections ahead of next Wednesday’s USDA figures and have placed an estimate of 34.9 bu/acre on soybeans which compares with the USDA figure of 36.1 bu/acre. Overall output according to Allendale would be 2.602 billion bu versus the USDA at 2.692 billion. Other figures from Cordonnier and Lanworth are 34.5 bu/acre and 35.0 bu/acre respectively. Lanworth are renowned for their use of satellite technology in crop forecasting although it remains to be seen as to how accurate they can be. The remnants of hurricane Isaac have provided rainfall over the lower Mississippi and eastern Midwest although it is believed to be too late to assist with pod filling.

Corn estimates from Allendale are at 118.2 bu/acre, well below the USDA’s 123.4 bu/acre giving an output of 10.326 billion bu, below the USDA’s 10.779 billion bu. Cordonnier and Lanworth figures are 119 bu/acre and 116.64 respectively.

In Russia the harvest continues and current estimates of the wheat yield are at 1.95 mt/ha compared to 2.87 mt/ha last year. If we believed this to be poor, spare a thought for Kazakhstan where grain yields are running art 0.75 mt/ha nearly half last years figure of 1.4 mt/ha.

Given the above we view today’s dip in prices as an opportunity to look at taking cover to fill any gaps which may exist. The dip may last for a day or so, but with our expectation on the next USDA crop report it may well be short lived.

Markets opened this morning with a positive tone following the extended weekend in the US to celebrate Labor Day. However, the early morning euphoria eased towards the end of the session in Chicago with soybeans, corn and wheat all just about ending in positive territory. The early highs, in which front month soybeans set another new record high, were all left behind as the session drew to a close.

Early month trade often attracts new money and fresh impetus to former trend direction, which we referred to in recent updates, however the market took fright at the mighty requirements of the US economy. Shares turned negative as US data showed the third consecutive month of decline in the manufacturing sector – and at the fastest pace in three years.

On a positive note for commodity markets, nothing in the fundamentals has changed and we approach the USDA September report with caution expecting data to show further yield reduction in both corn and soybeans as a result of ongoing dry conditions.

In terms of statistical data released today, the German ministry have released their production estimates and these show a reduced soft wheat output of some 105 kmt to 22.386 mmt, below last years figure of 22.71 mmt.

We still view any dips in price as buying opportunities for those with gaps in cover.

With the US markets closed today marking the Labor Day holiday it felt like a “non-day” would be on the cards. On a slow news day what do we discuss? Well, according to the Met Office the summer of 2012 has been the wettest for 100 years, as if we needed to be told that! On average the Uk received 366.8 mm rainfall during the summer months of June, July and August which compares with a more normal figure of 241 mm. In addition we are told that the summer was likely to be one of the most dull on record with 399 hours of sunshine, the worst sine 1980.

Clearly a slow news day! However, the wet and dull weather have conspired to produce a delayed harvest with resultant harvested wheat yielding poorly as previously mentioned. Specific weights are the poorest since 1977 according to the HGCA, and considering these figures are based on early (in relative terms) harvested grains in the south and contain a large proportion of milling quality wheat the final results are likely to deteriorate further.

Finally we saw this weekend become a major one for export tenders with close to one million tonnes of deals done. Egypt and Saudi Arabia were key buyers with a host of sellers featuring including Australia, EU and North and South America. The Black Sea region was not one of the key sellers on this occasion, having filled Egypt’s earlier 355,000 mt order.

Some view the overall Russian sales volumes to date as reflecting the exploitation of current availability, poor harvest prospects lead many to conclude that the exportable surplus will soon be committed, possibly as soon as the end of October, and that particular source of supply closing the doors. Should that become the case tenders will likely switch to EU and US origins with their higher freight costs.

The market opened quietly awaiting  the outcome of talks in Russia over grain stocks and the future of exports. The outcome of the meeting was confirmation of their reduced output but the much-expected limits on exports was not forthcoming. A worthwhile point to note was that Deputy Prime Minister, Arkady Dvorkovich, said, “As long as I am in charge of the sector, I will be against export restrictions.” A cynic might view this as an opportunity to U-turn should he be removed from office at some point in the future! The agriculture minister estimated an exportable surplus of grains in the range of 10 – 14 mmt, stating that domestic requirements would be fully met despite the lack of restrictions.

Despite the announcement it seems hard to contemplate a situation where Russia, and in turn Ukraine, will not intervene at some future point to protect their dwindling stockpile and avoid becoming an importer later this season.

The CBOT wheat market dipped on the news and has fallen back again this afternoon; in total some $0.20.bu has come off values basis Dec ’12 futures. It must be remembered that markets have not only the lack of export restrictions to handle today but also a month end which traditionally sees short term trend reversal as funds withdraw cash to pay out investors, rebalancing positions; finally there is an element of “risk-off” as the US heads into its extended Labor Day weekend break. We would not be surprised to see some of the dip recovered when trading resumes on Tuesday, nothing has really changed – maybe timing needs to be tweaked.

DEFRA has reported end June grain stocks in the UK, and as expected, levels are lower than in previous years. Add to this the harvest delays and we can clearly see the supply issues which have been experienced are understandable if not welcome.

Falling yields in Russia and Ukraine have led to growers withholding their reduced output back awaiting improved prices before committing to sales. Whilst prices may have risen some 47% in Chicago, the reality in Russia for growers is merely 25% and Ukraine is worse at 9% higher. Little wonder then that growers await better levels before making sales!

The weather is forecast to improve somewhat over the weekend, hopefully allowing growers to get back into fields and make some serious inroads into harvest and alleviate some of the supply issues we have been experiencing.

With the US markets closed today marking the Labor Day holiday it felt like a “non-day” would be on the cards. On a slow news day what do we discuss? Well, according to the Met Office the summer of 2012 has been the wettest for 100 years, as if we needed to be told that! On average the Uk received 366.8 mm rainfall during the summer months of June, July and August which compares with a more normal figure of 241 mm. In addition we are told that the summer was likely to be one of the most dull on record with 399 hours of sunshine, the worst sine 1980.

Clearly a slow news day! However, the wet and dull weather have conspired to produce a delayed harvest with resultant harvested wheat yielding poorly as previously mentioned. Specific weights are the poorest since 1977 according to the HGCA, and considering these figures are based on early (in relative terms) harvested grains in the south and contain a large proportion of milling quality wheat the final results are likely to deteriorate further.

Finally we saw this weekend become a major one for export tenders with close to one million tonnes of deals done. Egypt and Saudi Arabia were key buyers with a host of sellers featuring including Australia, EU and North and South America. The Black Sea region was not one of the key sellers on this occasion, having filled Egypt’s earlier 355,000 mt order.

Some view the overall Russian sales volumes to date as reflecting the exploitation of current availability, poor harvest prospects lead many to conclude that the exportable surplus will soon be committed, possibly as soon as the end of October, and that particular source of supply closing the doors. Should that become the case tenders will likely switch to EU and US origins with their higher freight costs.

LIFFE Closes wc 31 Aug 12 – Excel Spreadsheet

News today includes a further update from SovEcon reporting the Russian 2012 wheat crop at 38 mmt down from their last estimated figure of 39 mmt. In addition the Ukraine 2012/13 grain export figure is reduced to 20 mmt down from 22.8 mmt yoy. These figures appear the day before the Russian meeting to discuss grain output, exports and potentially the future of the region’s exports for the remainder of the season. A Russian industry leader has emphatically suggested that there will be no intervention in the free market; we remain unconvinced at this point in time. It seems inconceivable that Russia, and in turn Ukraine, will permit free exports until such time as the stock situation requires imports from either EU or US origins to supply the already high priced domestic flour and wheat markets. We will be watching developments closely tomorrow.

According to ADAS the UK harvest has reached midway and yield figures vary hugely as predicted. Low specific weights appear to be the key talking point although Hagberg levels are also lower than normal.

The “saviour” of the global soybean and corn crop deficit emanating from the poor US harvest which is expected to emerge from Brazil’s next crop may be blighted by a particularly mild El Niño weather pattern. However, at least it does appear that it WILL be an El Niño rather than another La El Niña with its predominant dry conditions. It is far too early to make a definitive call on what may or may not emanate from Brazil next season, although our conversations with growers in the region suggest early and large plantings are favoured with the opportunity to double crop and capture high priced markets whilst opportunities remain.

Overnight we received an update on US soybean export levels which have persisted at record pace, exceeding even last years record levels. This has resulted in stronger Gulf basis levels despite record prices achieved over the last couple of months. Current export volumes are 38% above the previous record of 2000/1; the US soybean balance sheet is likely to take a hit when next published by the USDA in their September report.

The principal destination for the most recent export shipments is China, cumulative volumes exceed each month last year with an anticipated total in excess of 59 mmt for the marketing year. The message is clear, currently price is not creating the required rationing necessary to preserve global stock levels, coupled with potentially disappointing US yield it would lead us to conclude that we will have to see further price increases before to long.