The Morning Vibe

27/11/12 -- The overnight grains are firmer and Europe has followed suit opening higher too. Last night's USDA winter wheat crop ratings coming in at the lowest on record is supportive. So too might be a success for the US in one of the various wheat tenders kicking around at the moment.

Last night's Commitment of Traders report shows funds pulling out of both wheat and soybeans, potentially capping downside and increasing the chance of an upwards short-covering bounce. In fact funds are now sitting on their smallest net long in soybeans for 9-months, possibly even a reason to think that a rally could be on the cards.

They just don't seem to fancy commodities at the moment, but I wouldn't like bet on that trend continuing for too long, especially if some of their outside market concerns go away.

Greece has been given the nod to qualify for the next tranche of bailout cash, in exchange for an agreement that (wait for it...) it will have it's house in order ten years from now when it has promised to bring its debt below 110% of GDP. Didn't you just know that that was going to happen?

All we need now is an eleventh hour resolution (another thing that we just know is going to happen) to the US fiscal cliff and it's game on again for the funds to get themselves off to a flyer in 2013 courtesy of their old easy to manipulate mate the Ag Market.

The fundamentals also look conducive for a Q1 2013 rally, which could be particularly impressive in it's magnitude if the funds were also to decide to wade in simultaneously.

It's still too early to talk of crop losses in South America, where it's too wet in Argentina and there are pockets of dryness in Brazil. At this exact moment in time IF there are going to be any losses then they are more likely to be in corn than beans.

It is a strong probability however that if the do get a record soybean harvest then hand-in-hand with that will come record logistical problems. Record long lorry queues into the ports, record long vessel waiting times, and record long shipping delays. And then there's the inevitable strike potential to add on top of that.

I mean, we've had Japan and Taiwan switching to US corn due to congestion problems in Brazil when they've virtually got no soybeans to ship, so what's it going to be like if and when they have a record soybean crop to market as well?

At the very least that points to front end tightness in soya and soy products in Q1 of 2013, probably acute front end tightness.

Given the imminent removal from the export market of Ukraine, Russia being more or less sold out too, and the prospect therefore of increased EU exports in the second half of the season (which already well ahead of last year's pace despite lower 2012 production), wheat appears to have strong upside potential.

Demand from North Africa and the Middle East should remain strong in Q1 and Q2 of 2013, against a backdrop of the record poor state of the US crop heading into winter, and large question marks too over conditions here in the UK and France, wheat could be the strongest leg of the soybean/corn/wheat complex between now and the spring.