Today has been marked by a lack of news which has resulted in markets trading into negative territory throughout most of the day although things have recovered towards the close.

Consequently, we have focussed upon global wheat markets for commentary this evening. The Ukrainian export ban and lack of available Russian grains for export keeps the Black Sea region out of the market for the remainder of this season. Added to this, the pace of EU exports, mainly France, will result in an historically tight stock to use ratio at the end of the season and points very strongly to the need for the region to ration. An estimated three and a half weeks usage at the end of the season is far too tight for comfort, and the prospect of corn imports from the US and Brazil (now that the EU has approved GMO events last weekend) looms large and potentially very real.

The Australian and Argentine crop prospects remain under pressure as we have mentioned previously which adds to global trade tightness. It would appear that a cumulative 30 million mt has “disappeared” from global tradable stocks compared with last year as a consequence of heat, drought or flood depending upon location.

US FOB prices are slowly becoming more competitive, and we believe that the next time we see Egypt in the market, and they have been absent for the last 21 days, it is very possible that US grains will feature for the first time this season. After the US there are few origins left to fulfill the requirements of importing nations.

Little wonder then that we continue to be friendly to the wheat market for the remainder of this season and recommend cover be maintained at high levels through to new crop.

The day dawned firmer today as US markets opened modestly higher after seemingly reversing recent declines last week. The big question being asked by many is, “have we seen the season and harvest lows?” There is a good case to suggest the answer is yes given the firm US cash markets with basis premiums at, or close to, record levels.

Nearer home we see Syria purchasing 100,000 mt of wheat from the Black Sea, some of the few remaining cargoes available for nearby delivery and possibly one of the few origins prepared to supply given the difficulty Syria will be experiencing in the finance world right now.

In Russia we continue to hear of opposition to any ban on grain shipments but domestic prices will ensure that any offers will be uncompetitive if made at all. Domestic prices continue to rise despite sales of intervention grain and we question what action will be taken in order to control food price inflation in coming weeks and months. To add to the nation’s woes, conditions remain particularly dry in the south and also in Ukraine.

Last week we were all concerned over the USDA’s October report which saw a sharp jump in prices followed swiftly by further fund selling which pushed prices lower still, despite the bullishness of the report – particularly in corn and soybeans. The power of a protracted fund selloff has been amply demonstrated these last few weeks, however it now seems that we may well have reached the end of the liquidation. Wednesday saw little, if any, fund selling and Thursday’s picture was characterised by the speculators once again adding to long positions and the market saw a lift as a consequence. Both London and Paris markets benefitted with decent gains seen for the first time in more than two weeks.

News on Friday that Ukraine has banned wheat exports with effect from November 15 has added to the lift in markets with Nov ’12 London wheat gaining £2.50/mt in early trade with sellers reluctant to offer volumes in an already thin market. Front month Paris wheat also made strong gains in early trade, rising some €3.75 on the back of the announcement. It is probably fair to say that the news does not come as a huge surprise because grain exports and wheat in particular had already been capped following a poor growing season, which has left the region some 28% behind last year in terms of wheat output which means the gains made after the announcement may be more emotional and short lived. The wheat export cap at 5 million mt was put in place to preserve domestic stock levels and we have seen an acceleration of export pace as traders rushed to beat the inevitable clampdown. There has been no mention of restrictions on other crops, corn and barley, which we believe to be because of their lower degree of sensitivity and importance to the region.

So far, we have seen no reaction from neighbouring Russia who suffered the same poor growing season and have been experiencing rises in domestic grain and flour prices to record levels that have prompted intervention sales in an effort to stem the upward price movement. However, similar to the Ukraine, Russian wheat has been priced out of the market for the past few weeks which has already limited sales and acted like a de facto ban.

Looking forward, we believe that EU wheat export levels will have to slow if balance sheets are to be maintained at adequate levels. Failure to see this could well result in a larger corn import programme (where from?) in order to fully meet demand.

In the wider world, Australian wheat looks set for a downgrade in output from the current USDA level of 23 million mt due to on-going dry conditions. A widely discussed output of 20 million mt is becoming the “norm” right now, which would likely impact the USDA’s export figure of 18 million mt on a tonne for tonne basis. In summary, the world continues to see adverse news as far as wheat is concerned and we continue to recommend that adequate cover be in place, at least for this season.

Soybean markets, like wheat and corn, have also suffered fund liquidation pressures and the related decline in price. Nov ’12 soybeans have lost over $3.00/bu but now seem to have found a degree of support and are currently trading $0.60 above the recent lows as buyers find value at these lower levels. The pace of export commitments from the US, particularly to China, have been particularly interesting with an almost unheard of proportion of the total USDA annual export estimate committed within two months of the season starting.

We continue to believe that global supplies remain tight and demand shows no sign of easing – yet! Consequently, the logical conclusion would be that prices will rise to force demand rationing, which begs the question, “Have we just seen the season low?” Our advice would be to ensure cover is in place through to Q1 and look for value in Q2 & Q3 when S American supplies begin to make their impact felt on prices.

US markets followed yesterday’s bounce this morning and have continued throughout the day lifting EU markets at the same time. Positive economic data from both China and the US have undoubtedly assisted; the prospects of a “hard landing” for the Chinese appear more remote as their GDP in Q3 hit 7.4% (massive by western measures!), and US housing data was at a four year high.

Global corn values have risen markedly as Brazil’s offerings in the export market look remarkably thin post-December. Ukraine’s offerings are becoming more expensive and it feels as if volumes are becoming somewhat restricted which could well point towards the more expensive US as a supplier in coming months. The key for importers going forward will be finding willing sellers – and this may become more difficult given the way we see global supplies.

Australian wheat has seen some price escalation on the back of potentially restricted availability in the dry conditions they are currently experiencing.

Strategie Grains figures for the EU grain crop are reduced mom by 1 million mt to 269.5 million mt, of which soft wheat account for 123 million mt, being a reduction of 700,000 mt. EU wheat export licences for the week amounted to 493,000 mt bringing then season total to 4.7 million mt.

We are picking up news of soybean planting delays in parts of Brazil which, if confirmed, will result in harvest delays and questions over the follow on “Safrinha” crops which characterise S American production. This key element of Brazilian production will need to be monitored closely as any change to normal patterns could well impact global supplies for a further season.

Today’s price action in the US and EU markets has raised our level of optimism although we need to see follow through into the weekend close if this outlook is to be confirmed. The lack of fund selling both yesterday and today is encouraging this outlook right now.

Today has been VERY interesting in a number of ways! That’s always a good opener to grab attention and make sure that everything is read!

Despite little in the way of fresh news it would seem that fund liquidation has dried up, for now at least. Watching CBOT markets like a hawk today has been insightful, they have declined to a level and rebounded higher on a number of occasions, albeit a conservative rebound, but have stayed for the most part in the green, or positive territory. The “gap’ on the Nov ’12 soybean chart is still not yet filled and the bears are struggling to get there right now. If this price action is repeated tomorrow we may well be confident in saying,  “the lows are in.”

Sentiment today was underpinned by Moody’s confirming Spain’s credit rating at Baa3 despite their caveat of a negative outlook. The rating was supported by the ECB’s willingness to purchase Spanish government bonds.

Anecdotal evidence of fund buying in corn, wheat and soybeans today has filtered our way although volumes have been on the light side. Cash basis levels in the US remain very firm which is indicative of tight supply into a strong demand.

Japan has reportedly purchased US corn this week as the outlook for Brazilian availability continues to decline with loading delays. Given our opinion on tight US supplies, this will only tighten them further and, when prices break to the upside, will push them further still.

Algeria has been reported to have purchased 400,000 mt wheat from unspecified sources for Dec ’12 shipment. We understand the French offers to be too expensive which points to Argentina as the likely origin; given their export commitments on barley and corn over the same time frame we question the sense in making the sale, at discount prices, when latent demand on the doorstep already exists! It is indeed a strange world in which we live!

Egypt has stated it plans on importing up to 4.8 million mt wheat having committed to 2.3 million mt so far this season. It would seem that the US is a likely origin in coming tenders as the spread between US and other origins continues to narrow.

Finally, Farmer’s Weekly have published a statement indicating that bio-ethanol producer, Ensus, is accepting wheat down to 60kg/hl this season. Last year it took grain down to 68 kg/hl and plans to review the situation once it has evaluated extraction rates from lower specific weight grains. The plant currently processes 75,000 mt a month and average bushel weights are 68 kg/hl, the expectation is that intakes will rise to 90,000 mt/month by the end of the year.

Tuesday started in fine “turnaround” style in the CBOT markets with early gains across the markets only to be turned around into negative territory by the close of play. This, in turn, pressured markets this side of the pond leaving both London and Paris wheat markets lingering in a long term rangebound limbo.

US markets continued their selloff with a degree of blame being loaded onto the shoulders of new “Dodd-Frank” trading reforms which are aimed at tightening the rules affecting investors with swap positions by requiring them to hold collateral against both sides of the swaps which have previously been deemed to be effectively hedged against each other. Deadlines have forced “weak” speculators to liquidate at a time when net long positions in corn and soybean futures and options are at relatively high levels; thus exacerbating the effect of liquidations driving markets lower.

Interestingly, Nov ’12 soybeans rallied off a technical level created by a long standing “chart gap” today implying that all is not yet lost to the bears. Time will tell.

Early reports of US winter wheat conditions are showing some concern over emergence; seemingly the summer drought has not yet rolled over and died! More moisture is still needed if crop condition is to improve and go into winter dormancy in good condition.

Australian wheat growing regions are forecast to receive little, if any, rainfall in the next fortnight; if this becomes the case yield losses will be on the cards making USDA forecasts of 23 million mt output look high. Sub 20 million mt levels are being discussed quite widely.

Finally, the NFU and HGCA have almost agreed upon the UK wheat output at around 13.25 million mt. Projected import levels of maybe 2 million mt and exports of a top figure of  1 million mt leave the UK way behind recent self-sufficiency levels.

CBOT markets have been on the defensive throughout most of today as fund selling has dominated not only grains and oilseeds but also metals and energies. It has been interesting to note the scale down buying which has emerged from commercials (aka consumers) as they see value emerging at these lower levels.

We see this market as more technical than fundamental right now as Nov ’12 futures contracts approach first notice day in a couple of weeks. How much lower can we go? Not an easy question to answer, but we seem to be close to technical support levels on the charts.

We would expect to see seasonal lows made in the soy complex very soon and still believe that the grain fundamentals are bullish. Until the funds pick up on this news and stop selling we are destined for lower levels. Fundamentals remain unchanged, global supplies of soybeans, corn and wheat are all tighter than is truly comfortable and the current selloff is both stimulating demand, which the S&D can ill afford, and creating consumer opportunity.

The USDA’s October report, issued yesterday, has given way to speculation on the November report even before the ink has dried! The much-awaited report was construed as bullish and markets reacted accordingly with sharp gains across the soy complex, corn and wheat.

The trade received an unexpected surprise with a cut in 2011/12 world corn production and stocks although the 2012 corn and soybean production estimates were close to expected levels although harvested acres for both crops were increased as expected.

The much-debated US corn yield figure was reduced marginally to 122.0 bu/acre from 122.8 and soybean yield increased, as expected, to 37.8 bu/acre from 35.3. However, as is so often the case, as you dig deeper into the report all is not quite as we may be persuaded to believe!

As Rob Fisher, Managing Director of IAG, pointed out so eloquently at the seminar which preceded the Hull Corn & Feed Trade Association Dinner in Hull yesterday, the incredibly tight global S&D position is predicated upon some massive production increases in both Brazil & Argentina. The figures call for a 22% increase in Brazilian output and a 34% increase in Argentine output. These sorts of increases seem to be disproportionate and we ask the question, “Were these numbers inserted to balance the books?”

Clearly, we do not have the answer, but believe that demand rationing through higher prices is essential if supplies are to last throughout the season. Consequently our view remains bullish going forward and gaps in cover should be filled even though current prices may seem to be unpalatable right now.

In corn, which has a direct correlation with wheat, we would expect the next report, (yes, we are guilty of looking at that one before the ink has dried too!) in November, to show further declines in output as all the acres chopped for forage are currently counted as “crop”. Consequently, as the true crop is harvested and recorded we would expect to see overall output lower than currently stated. In past years this has been a feature more often than not and we see no reason for this to change this year.

We therefore hold a similar view on corn as we do on the soy complex, that being bullish.

World wheat stocks were reduced from a month ago by nearly 4 million mt, which was close to expectations and output reduced by 5.7 million mt. However, the greater impact upon prices will likely come from the larger market place and international trade. We know that Russia is pretty much done in terms of exports this season and seemingly there is little Ukraine material available for export. France has picked up the lion’s share of recent Egyptian tenders and will soon deplete its exportable stock leaving the US as the major supplier to importing nations.
Australian weather shows little sign of improvement and the prospect of a sub 20 million mt crop is not too far away; this will clearly impact their export capability further pressuring prices going forward.

As mentioned earlier, we expect the major price driver to come from corn prices and our outlook is bullish. We would recommend cover to be in place through to the end of this crop year as we expect another tight end of season as far as stocks are concerned.

The USDA’s long awaited figures have finally been published today and the report was generally received as bullish with CBOT grain and soy markets sharply higher.

The trade received an unexpected surprise with a cut in 2011/12 world corn production and stocks, although 2012 corn and soybean production estimates were close to expected levels although acres for both crops were increased as expected.

The numbers were as follows:
US 2012 wheat ending stocks @ 654 miobus, above estimates of 630, and below 698 mom.
World 12/13 wheat ending stocks @ 173 M t, above estimates of 172.813, and below 176.71 mom.

US 2012 corn crop @ 10.706 biobus, above estimates of 10.601, and below 10.727 mom.
US 2012 corn yield @ 122 bpa, below estimates of 122.884, and below 122.8 mom.
US corn 12/13 ending stocks @ 619 miobus, below estimates of 648, and below 733 mom.
World 12/13 corn ending stocks @ 117.27 M t, below estimates of 121.322, and below 123.95 mom.

US 2012 soy crop @ 2.86 biobus, above estimates of 2.764, and above 2.634 mom.
US 2012 soy yield @ 37.8 bpa, above estimates of 37.006, and above 35.3 mom
US soy 12/13 ending stocks @ 130 miobus, below estimates of 134, and above 115 mom.
World 12/13 soy ending stocks @ 57.56 M t, above estimates of 53.301, and above 53.1 mom.

Moving forward we would expect the November report to show further declines in corn production as all of the acres chopped for silage are counted as “crop” and yield continues to decline. We recall that in the past crops continue to get smaller more often than not, and we expect this to be a feature through to final output figures are released in January.