• Weekly overview.

• Last Friday’s USDA report was, when the dust settled, a “something and nothing” affair leaving us and most of the trade looking forward to the stocks and prospective plantings reports to be issued on 28th March. Whether or not the report grasps the nettle and addresses the issue of extremely tight US soybean and corn stocks remains to be seen.

• It appears that some signs of corn stock tightness are creeping into the marketplace and prices are reacting accordingly. Cash corn prices have reflected strong premiums over CBOT levels for some time now and the marketplace is reporting stronger volumes of wheat being fed due to corn tightness. This reflected in Mar ’13 CBOT corn’s strong premium over May and we feel that the May ’13 contract is likely to exhibit similar tendencies as time progresses.

• Soybeans, on the other hand, have looked somewhat less strong presumably as a result of the Brazilian harvest which is progressing well. Debate on overall output continues to flow both up and down, but there is little doubt that whichever way we view it, the harvest will be a big one. Whether it is 80 83 million mt is probably of secondary importance. The big issue really is the ability of Brazil to cope with its logistical issues and finally be able to export the crop.

• We hear of many troublesome issues within Brazil, all conspiring to put a spanner in the export corridor. Vehicles travel in convoy on poorly maintained roads from the producing heartlands, mainly to assist each other when road surfaces prevent safe passage. Journey times which took two or three days now takes up to four or five! This is consistently adding cost with queues to discharge vehicles at ports being reported at 25km or more and delays of up to 24 hours when actually discharging at the port. None of these factors assist the cause or provide confidence to end consumers so there is little wonder the vessel line up and loading delays of 60 days plus are encouraging buyers to look elsewhere.

• The “elsewhere” in discussion just happens to be the US. We did pick up that some 8 or 9 further cargoes of soybeans could have been sold recently but were not because of the lack of availability of suitable freight. Seemingly the huge line up at Brazilian ports is having an impact upon the number of vessels offered for charter. At the same time, the tight US stock position has little room for additional exports and current low (in relative terms) prices continue to fail to convince consumers that there is a potential supply issue.

• Stratégie Grains this week reduced their outlook for EU soft wheat output by 600,000 mt with a revised estimate at 131.6 million mt largely as a result of the poor UK crop prospects. The UK’s 2013 harvest is predicted at 12.108 million mt, down from 12.417 million mt a month ago. On the other hand barley output for the UK is estimated at 1.1 million mt higher, largely as a result of increased spring plantings following the wet autumn planting season which saw large acreages unplanted. Rains left an estimated 25% of the planned acreage unplanted, this is a figure that approaches record levels. On-going cold conditions have left the crop in a delayed state with the possibility that harvest may similarly be delayed. We are starting to see early indications of new crop barley discounts making an appearance at what appear to be attractive levels in comparison to wheat.

• Finally, Brussels granted a further 564,000 mt of wheat export licences, which brings the season to date total up to 15.779 million mt. This is 3.854 million mt ahead of last season at the same time; or in percentage terms, 32.3% ahead of last season. We continue to have concerns over the end of season stocks levels, and if we have any harvest delays extending the period of old crop consumption, the tightness will be exacerbated with potentially serious consequences.

• The CBOT soybean market continues to be pressured by the pace of harvest in Brazil, grains in the form of wheat and corn are in positive territory as some short position holders are taking cover and wheat feeding levels are reportedly on the increase.

• Additional pressure on wheat is seen from a prospective strong government buyer in Russia to replenish stocks released to ease rising domestic price levels this season. This has the potential to limit or cap to some degree the traditionally strong early season export volumes which are associated with Russia and also the Ukraine.

• Strategie Grains reduced their outlook for EU soft wheat output by 600,000 mt with a revised estimate at 131.6 million mt largely as a result of the poor UK crop prospects. The UK’s 2013 harvest is predicted at 12.108 million mt, down from 12.417 million mt a month ago. On the other hand barley output for the UK is estimated at 1.1 million mt higher, largely as a result of increased spring plantings following the wet autumn planting season which saw large acreages unplanted. An estimated 25% of the planned acreage was left unplanted by rains which approached record levels. Ongoing cold conditions have left the crop in a delayed state with the possibility that harvest may similarly delayed. We are seeing early indications of new crop barley discounts making an appearance at what seem to be attractive levels in comparison to wheat.

• Brussels granted a further 564,000 mt of wheat export licences, which brings the season to date total up to 15.779 million mt. This is 3.854 million mt ahead of last season at the same time; or in percentage terms this is 32.3% ahead of last season. We continue to have concerns over the end of season stocks levels, and if we have any harvest delay, the tightness will be exacerbated with potentially serious consequences.

• US export figures showed a strong week for wheat, corn and soybeans all of which were above estimates, soybean meal was below the lower end of estimate whilst oil exports were within estimated volumes. Wheat figures were in excess of 1 million mt which has added support to the market today.

• We continue to see the trade focus on the huge line up of vessels in Brazilian ports with load times reportedly exceeding 60 days. Chinese soybean crush margins remain at, or close to, record levels which ensures steady demand for physical supplies, and shipping delays in S America sees continued switching to the USA where availability appears to astound us given the tightness of supply particularly going forward.

• The US weather in the Delta is a focal point right now as planting has started albeit in patchy conditions and possibly on the wet side. Overall it seems that soil moisture is adequate, possibly even encouraging, and current pace of field work is average.

• In Russia the southern grain regions are turning to unfavourably dry after a month long dry spell. If crops are to reach their full potential, a prolonged period of soaking rains is needed to relieve parched soil conditions. These conditions are to some extent mirrored in the East of Ukraine. January precipitation did assist conditions following a dry last quarter of 2012, but rain is needed – and right now!

• We have seen CBOT soybean prices decline somewhat as harvest progress is made in Brazil. Top producing state, Mato Grosso, is reported to be 75% complete, but logistic issues continue to plague the country as evidenced by the record vessel line up. We expect this situation to continue for at least the rest of March and possibly into April, which leaves the US under pressure to come up with supplies.

• Friday’s USDA report had little in the way of significance, as we anticipated, and whilst we might take issue with some of their numbers, the market has shrugged it off almost as a non-event, and we look forward to what is likely to be a more influential report on 28th March.

• Some commentators are beginning to report that the long lived selling pressure and markets are oversold right now. Where have we heard that before? This could well suggest that if there is any sign of a “trigger” we could well see funds booking their profits in equity markets and transfer monies back into relatively cheap commodities – with potential upside for prices.

• Markets showed some glimmer of strength as Chinese buyers looked, once again, at US soybeans amid fears of loading delays and shipping disruption in Brazil. Some consider that normality is unlikely to be restored to Brazilian shipping until at least April; if this is the case pressure will remain on US stocks as buyers look to secure supplies leaving an ever tightening position.

• The long standing US drought situation and its consequent worries are easing fast as heavy rains continue to wash over the MidWest. Key corn producing states have received as much as two to four times normal precipitation in March so far. A drier period is forecast for this week which will be welcomed as we approach April and fieldwork in preparation for the busy planting season. Further north deep snows in North Dakota still cover the spring wheat growing areas. A rapid onset of thaw is needed to allow timely seedbed preparation, although an overly fast thaw would create flooding risks. It seems there is only a narrow band of optimal conditions!

• Probably the biggest single issue which stands out over the last week is Wednesday’s fall in CBOT grains, wheat in particular, which saw up to a 3.5% drop as improved weather across the Plains and Mid West gave funds further reason to add to their net short positions. This drop was also reflected in EU grains, which declined, albeit in a slightly more subdued manner.

• Current wheat prices are far from discouraging demand, and in spectacular style, once again, Brussels issued wheat export licences for 661,000mt bringing the season total up to 15,215 million mt. The increase on the same time last year now stands at 3.731 million mt, which represents close to a 32.5% uplift. We continually wonder at this level of exports and where late season grains are going to be sourced to meet demand; and we continue to draw the same conclusion – which is that we are unsure!

• That said it appears that demand and homes for the UK’s lower specific weight wheat is easing somewhat. As we approach the summer grazing season and feed demand starts to decline it is feasible that the long holders will be in a weaker position and something of a price decline kicks in. There is evidence that some of these grains are being hauled much greater distances from the surplus regions in the South into the tighter supplied North West. Once livestock are turned out this demand will ease somewhat and we could see a situation where sellers are looking for outlets.

• From a more global perspective, Egypt announced that its strategic stocks were in excess of 2 million mt, more than enough to last well into May; the prospect of the world’s largest importer being well stocked has added to negative sentiment. Additionally, the Egyptian Pound has fallen in value by some 8% this year (since Jan ’13) and Government reserves, necessary to support GASC’s (General Authority for Supply Commodities) letters of credit when purchasing, have dropped in excess of 30%. Maybe it is this rather than large stock levels, which is leaving them absent from tenders in recent weeks; or is that us being cynical once again?

• There has been some pre USDA report positioning in the lead up to the figures, which are due to be released at 17:00 (UK time) today. It is widely anticipated that soybean stocks will be reduced as a result of greater than forecast exports as well as larger domestic crushing. Corn stocks are predicted to rise following lower export numbers, and wheat is not expected to change materially. The USDA’s March figures do not have a strong track record of significant or unexpected numbers; consequently we have to wait until 28^th March for the grain stocks and prospective plantings report which is likely to have greater market significance.

• The US issued its weekly export data as follows:

Wheat: 828,100mt, which was above estimates of 350-550,000mt.
Corn: 156.500mt, which was below estimates of 450-650,000mt.
Soybeans: 1,382,600mt, which was above estimates of 900,000-1,250,000mt.
Soybean Meal: 119,300mt, which was below estimates of 200-300,000mt.
Soybean Oil: negative 19,700mt, which was below estimates of 5-15,000mt.

• Cumulative soybean exports have hit 96% of the USDA’s full annual forecast midway through the season, there is little room for additional sales if their forecast is to remain intact. The hope seems to be that S American supplies kick in big style – and soon! Soybean Meal sales are also at the upper end of USDA forecasts, having hit 94% of full year estimates, which leaves little room for manoeuvre going forward.

• Markets started the day in positive territory in reaction to yesterday’s declines with value being seen at some of the lower levels and buyers emerging from the sidelines. With half an hour to the CBOT close, front month soybeans are once again hovering above $15/bu, corn is a touch lower and wheat levels are showing slight gains.

• Markets are showing a degree of caution ahead of Friday’s USDA report – expectations are for a reduction in soybean stocks due to increased exports and domestic crush levels, corn stocks are expected to rise due to reduced exports, and wheat is anticipated around unchanged. This report will pave the way for the more important stock and plantings report issued 28th March.

• Brazil’s Conab has issued its latest update on the 2012/13 soybean crop at 82.1 million mt, a reduction of 1.3 million mt mom, albeit a big improvement on last year’s 66.4 million mt. Their estimate of the 2012/13 corn crop remains unchanged mom at 76.1 million mt. Interestingly the soybean decline was blamed on both too much, and too little rain; too much in Mato Grosso during February, and too little in southern states in January.

• India has, as expected, confirmed its 5 million mt increase in wheat exports to make room for the forthcoming harvest. High stocks and limited storage capacity are believed to be the reason behind the move, and a push towards pre June movement is likely to beat new crop Black sea supplies to market.

• Brussels has today issued another big week of wheat export licences, the figure hitting 661,000 mt bringing the season to date total to 15.215 million mt. The increase on the same time last year now stands at 3.731 million mt, which represents close to a 32.5% uplift. We continually wonder at the level of exports and where late season feed grains are going to be sourced to meet demand; and we continue to draw the same conclusion – which is, “we are unsure!’

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LIFFE Closes wc 1 Mar 13

• Markets have taken a turn to the downside with wheat leading the way, CBOT markets dropping over 2% and corn following in similar style. European wheat markets followed with losses also up to 2% being posted on the close.
• India’s statement that it will prioritise wheat exports ahead of rice and oilseed meals in the run up to their new harvest has led to views that an additional 5 million mt of wheat exports are in the offing. In addition, Lanworth, the Reuters owned crop forecaster, has raised its estimate of the US wheat harvest following recent snow and rains, which have improved spring growth prospects.
• Fund selling in wheat, where an existing net short position already exists, has added to today’s declines. It was also reported that funds were feature sellers of corn in addition to wheat. Technically, wheat is approaching some significant price support, which, if breached, will pave the way for further declines, conversely if it holds it could pave the way for higher levels.
• Earlier today we saw front month soybeans topping $15/bu once again, clearly this triggered some profit taking which has impacted prices throughout the rest of the day. It would appear that fears of being the last one holding old crop US soybeans before S American supplies are freely available is the “Sword of Damocles” which overhangs this market right now. However, we reiterate our often stated view that there is likely to be a supply issue in the US if demand continues at its current pace.

• Most of the day has seen CBOT markets displaying green numbers signifying higher price levels. This, despite improved Plains soil moisture levels following recent rain and snowfall. The latest USDA crop condition report shows improved wheat condition in Kansas and Oklahoma.

• The market continues to look at S American conditions, and despite March improvements (early days) due to better rainfall in Argentina it may be overly optimistic right now to forecast bumper harvests. Planting delays and extremely dry conditions in the mid summer period will likely have taken their toll on potential. Recent rains will, no doubt, have improved the crop outlook but overall output will have been compromised to some degree. We do not have to look back too far in time to recall sodden fields leading to planting delays and crops ultimately being sown in less than ideal conditions.

• As a consequence we received news from Argentina’s RGE (Rosario Grain Exchange) reducing their estimate of soybean output to 48 million mt from 53 million mt last; corn output was also reduced to 25.5 million mt, a 1 million mt reduction.

• US soybean prices appear, despite recent gains, to remain attractive with exporters reporting sales of 345,000 mt to China in 2013/14 and a further 330,000 mt in the 2012/13 crop year to “unknown destinations”. These sales appear to have provided markets with a degree of support, albeit there is a suggestion that the interest in US supplies could well be driven by Brazil’s port congestion issues. Prices have today moved above the $15/bu level (basis March ’13 contract) before easing in the last hour of trading. A close above this level ($15/bu) would likely trigger further upside moves with technical targets above $16/bu looking possible.

• It appears there is some recognition surfacing in the marketplace that the US S&D can ill afford these additional exports, end of season soybean stocks are already forecast at historically low levels, and additional export sales will only add further pressures.

• As this is written we are seeing another day with CBOT markets displaying a marked divergence with the soy complex making gains at the expense of wheat and corn. Seemingly further fund selling in wheat has led the way a weighed on corn prices. The selling was preempted by further snow forecast across the Plains, which will aid new crop but does not impact old crop!

• As mentioned last week the technical chart picture across all three crops looks decidedly bearish albeit with oversold conditions fast approaching, which may lend some short term support. Price dips are certainly attracting consumer interest, China with its strong soybean crush margins, continues to appear as an interested buyer on the decline.

• Despite Paris wheat being dragged lower by CBOT, the most notable feature is the inverse, or spot premium, which widened €12.5 on the close. It is little wonder that the trade of choice is nearby export; who would wish to hold grain to sell at a lower level in two months time?

• Southern Russia and Ukraine have experienced an extremely dry February after a stormy January period which helped to replenish low soil moisture levels. It appears that the region is caught in-between north and southern jet streams. Southern Russia experienced a dry autumn which extended into December, unusually as the normal conditions would be wet. Whilst there is no current cause for concern precipitation is necessary in coming weeks if crop stresses are to be avoided.