What's got Tarquin and Co pooping their pants this time seems to be a combination of factors, most of which have little to do with market fundamentals.
Firstly, we have the shameless but predictable fiscal cliff "deal" which was nothing more than a postponement of a fixture still to be replayed in the not too distant future. And what, pray tell, was Obama doing on his bloody holidays in Hawaii anyway knowing full well that he'd gone away and left the gas on?
Secondly, we have the US debt ceiling issue, which has still to be resolved, amidst talk that US Treasury Secretary Timothy Geithner may step down at the end of the month just before the brown smelly stuff gets liberally distributed around the room.
Thirdly, we now have vibes that the Fed is cooling on it's hitherto laid-back approach to printing money and flushing it down the toilet, or quantitative easing as it's otherwise known.
Not that I have a problem with Tarquin and Co pissing off with their lorry loads of cash to go and play somewhere else you understand. I'd rather they weren't in the market at all ever. Full stop.
Please, do not email me to tell me that they provide market liquidity or that they cannot influence price direction as for every buyer there must be a seller and vice versa or I will set Nogger's Dog on you.
The problem I have is that we know full well that the market will welcome these guys back like the return of the Prodigal Son at some undetermined point in the future.
Whether that is next week, next month or next year only Tarquin knows.
Meanwhile, don't worry about Obama, he's flown back to Hawaii to resume his interrupted jollies lauding his negotiating skills in obtaining the fiscal cliff "deal" as the fulfilment of an election promise to tax the rich.
You couldn't make it up could you? No wonder Tarquin has a dose of the Tom Tits with this guy at the helm.
I only hope that Obama remembered to switch the gas off and cancel the milk whist he was back. I also wonder idly what he'd do, if upon his return to Hawaii, he finds Michelle sporting a brand new pearl necklace with her bikini top unhooked and getting her suncream rubbed onto her a little too enthusiastically for his liking by one of the locals?
03/01/13 -- Soycomplex:
Jan 13 Soybeans closed at USD14.03, down 2 1/2 cents; Mar 13 Soybeans closed at USD13.86 1/2, down 5 3/4 cents; Jan 13 Soybean Meal closed at USD405.60, down USD1.50;
Jan 13 Soybean Oil closed at 50.21, down 31 points. Beans hit a six week low on news that China had cancelled a further 315 TMT of US soybean purchases, although they finished well off the session lows. The US attaché to Brazil pegged the soybean crop there at 83 MMT, which is 2 MMT more than the USDA currently predict. They also placed exports at 39 MMT which is 1.6 MMT more than the USDA. The latter will issue revised estimates next Friday. Before that CONAB will issue their revised January forecasts for Brazilian crop production, they had soybean output at 82.6 MMT and exports at 36.4 MMT last month. Trade estimates for tomorrow's weekly export sales report for beans are 250-450 TMT.
Corn: Mar 13 Corn closed at USD6.89 1/4, down 1 1/2 cents; May 13 Corn closed at USD6.91, down 2 1/2 cents. Funds were said to have been net sellers of around 3,000 corn contracts on the day. Ukraine has slipped into full-on corn export mode. Ministry data shows that they exported 2.46 MMT of grains in December, of which 2 MMT was corn. Year-to-date shipments are 14.5 MMT, of which 6.36 MMT is corn. Full season grain exports are forecast at 23 MMT, the vast majority of the remaining 8.5 MMT of that will also be corn. The reinstatement of the dollar a gallon tax break for US biodiesel producers should once again support the US ethanol industry. Argentine corn planting is said to be 82% complete, in line with last year's progress despite the wet weather. Trade estimates for tomorrow's weekly export sales report for corn are 200-350 TMT.
Wheat: Mar 13 CBOT Wheat closed at USD7.55 1/2, up 1/4 cent; Mar 13 KCBT Wheat closed at USD8.11 1/4, up 1/4 cent; Mar 13 MGEX Wheat closed at USD8.46 1/2, up 5 cents. The Argentine wheat crop is said to be past three quarters harvested versus 93% last year at this time. The Buenos Aires Grain Exchange have the crop at 9.8 MMT versus the USDA's 11.5 MMT. The Australian wheat harvest is nearing completion, just in time to avoid what Bloomberg are calling the most wide-ranging drought in more than a decade. Final production numbers there are yet to be confirmed. Trade estimates for tomorrow's weekly export sales report for wheat are 350-550 TMT. Last week's sales were a near two year high in excess of 1 MMT, but that is unlikely to be repeated in a holiday week. It may take a few weeks more to confirm if global wheat demand really has switched to America.
03/01/13 -- EU grains closed mixed but mostly lower with Jan 13 London wheat up GBP0.40/tonne to GBP206.40/tonne, May 13 fell GBP1.50/tonne to GBP208.50/tonne and new crop Nov 13 was GBP3.00/tonne easier to a more than 2-month low of GBP183.00/tonne. Jan 13 Paris milling wheat rose EUR2.25/tonne to close at EUR253.50/tonne.
News that the US wasn't about to tumble off the edge of it's very own fiscal cliff, at least not for another couple of months, provided nothing more than a very short-term boost for grains this week.
Risk-off mode still seems to be the order of the day as far as the funds are concerned, what and when they might change their minds is not an easy one to forecast.
So whilst we read stories on Bloomberg today that say "The worst U.S. drought since the 1930s Dust Bowl is damaging wheat crops across the world’s biggest supplier, at a time when hedge funds are the most bearish on prices in seven months" it is strange to see Chicago wheat prices hitting their lowest since before Independence Day.
Meanwhile data from the Kansas Agricultural Statistics Service, the top wheat producing state in the US, shows that crop conditions have deteriorated markedly during December. The US wheat crop was already estimated to be in the worst state on record in the USDA's last crop condition report at the end of November.
As we have seen on many occasions before however, fund money flows can and frequently do over-ride market fundamentals.
The MetOffice today announced that 2012 was the second wettest in history on records going back to 1910. The only worse year was 2000, when UK wheat yields strangely averaged over 8 MT/ha. The frequency of extreme rainfall in the UK may also be on the increase, they warned.
MDA CropCast echoed similar comments from other weather observers by highlighting that "snow cover remains rather limited across much of Europe, which is leaving wheat exposed to potential cold outbreaks."
For the time being however "temperatures remain rather mild in most areas, and winterkill threats are low," they added. There surely wouldn't be many willing to put too much money on the current mild spell signalling the end of a frost threat yet though.
MDA CropCast are forecasting an EU-27 wheat crop of 132 MMT this year, a 4% increase on 2012. Barley output is called marginally higher than this season at 52.9 MMT.
Meanwhile an optional origin wheat sale to Syria made earlier in the season is to be fulfilled with French origin grain after supplies from the planned Black Sea origin have dried up, according to trade reports. A vessel is expected to arrive at the French port of Rouen to load 25 TMT of wheat today. The same Middle East buyer is also said to be back in the market tendering for a further 100 TMT of wheat with a deadline of Jan 28.
The Kazakhstan Farmers Union says that the nation's growers are facing a "disastrous" shortage of spring seed, with prices set to double before farmers begin sowing later in the year.
02/01/13 -- Soycomplex: Jan 13 Soybeans closed at USD14.05 1/2, down 13 1/4 cents; Mar 13 Soybeans closed at USD13.92 1/4, down 17 1/4 cents; Jan 13 Soybean Meal closed at USD407.10, down USD13.50; Jan 13 Soybean Oil closed at 50.52, up 136 points. It was a choppy session with beans trading within a range of around 45-47 cents. Early gains were quickly eroded though, maybe on the realisation that the last minute deal to avoid the US tumbling over the fiscal cliff was not much more than a sticking plaster over a gaping wound. That issue, along with that of the US debt ceiling, are in reality far from resolved. Funds finished up as estimated net sellers of around 7,000 soybean contracts on the day as liquidation mode returned. Despite the rampant pace of US soybean exports the trade seems to be focusing more on the upcoming potentially monster South American harvest. Soyoil got a boost from news that the last gasp deal pushed through Congress would include the reinstatement of the USD1/gallon biodiesel tax break through to the end of 2013. Very small volumes of early new crop soybeans have been harvested in Brazil so far, it will be February before the harvest is in full swing. Customs data shows that Brazil only exported 135 TMT of soybeans in December, less than a tenth of the volume exported in December 2011. Argentine soybean plantings are said to be 82% complete.
Corn: Mar 13 Corn closed at USD6.90 3/4, down 7 1/2 cents; May 13 Corn closed at USD6.93 1/2, down 6 3/4 cents. Corn also failed to hold early session gains, with funds estimated to have finished up as net sellers of around 8,000 contracts on the day. Argentine corn planting is still only seen around 75% complete as rains refuse to go away for longer than a couple of days, making the USDA's production estimate of 27.5 MMT this year seem way too high. "Showers returned to northeastern areas over the past two days, including northern Santa Fe and northern Entre Rios, which maintained abundant moisture there. Meanwhile, drier conditions across central and southern areas have allowed wetness there to continue to ease. Showers should once again return to northeastern areas this weekend, which will keep planting there a bit slow," say MDA CropCast. There may still be more fund repositioning/rebalancing in to get through yet, leaving corn vulnerable to further selling. The USDA release their January WASDE report next Friday. Before that we have Brazil's CONAB out with their production estimates on Jan 9th. Last month they estimated the 2012/13 corn crop at 71.9 MMT and 2012/13 corn exports at 15.0 MMT.
Wheat: Mar 13 CBOT Wheat closed at USD7.55 1/4, down 22 3/4 cents; Mar 13 KCBT Wheat closed at USD8.11, down 20 cents; Mar 13 MGEX Wheat closed at USD8.41 1/2, down 24 cents. Funds were judged to have been net sellers of around 5,000 Chicago wheat contracts on the day as part of their overall liquidation phase despite the notion that US wheat is now amongst the cheapest in the world. India said that it plans to export 2.5 MMT of wheat over the next 5–6 months. Egypt's GASC said they have enough wheat supply to last them almost 6 months including what is already purchased but not yet shipped. Whilst the USDA's weekly crop condition reports have ceased until the spring, the Kansas Agricultural Statistics Service said that 31 percent of the state's wheat crop ended 2012 in poor to very poor condition, that's 6 points worse than the USDA last reported at the end of November. The agency noted that only three of the 53 reporting stations around the state received more than an inch of precipitation in December. A similar report out of Oklahoma pegged 61% of the wheat crop as poor to very poor versus 44% from the USDA in November.
Grains got an initial boost from the news that a deal, albeit a temporary one, had been reached to avoid a US fiscal cliff disaster. Jan 13 Paris wheat traded as high as EUR5.00/tonne firmer at one stage, but failed to hold most of those early gains.
US grains opened with decent gains to start the new year, but quickly turned negative in afternoon trade, dragging European markets down with them.
US wheat is now said to be cheap enough to feature into Europe. Some business may have been done over the Christmas period, according to trade gossip, although the overall volume will be limited by the Tariff Rate Quota (TRQ) system that restricts US wheat shipments to the EU.
It may take a few more weeks of buoyant US wheat export sales to convince the market that world demand really has switched across the Atlantic. Fund money meanwhile has established a significant short in CBOT wheat, but still seems willing to add to that for the time being.
Closer to home, suddenly warmer weather could still have a wintry sting in the tail. "Heavy rainfall and strong warming have developed in European winter wheat and rapeseed growing areas. Snow is rapidly melting in Eastern Europe, while slow growth of winter grains has resumed in portions of France, southern Germany, Italy and Spain. Temperatures January 1 reached 50 F in Paris and mid-upper 40 s F in Germany and Poland. Winter wheat and rapeseed will grow with temperatures above freezing (32 F)," say Martell Crop Projections.
"If the unusual warmth persists and is followed by an Arctic blast of cold, there may be damage to winter grains. For the time being, there is no hint of bitter cold as the forecast calls for temperatures 5-10 F above normal all across western and northern Europe," they warn.
Even closer to home things are very far from ideal indeed. "Conditions in United Kingdom have become way too wet from 3-5 inches of precipitation over the past 2 weeks. Indeed the 2012 calendar year may have set a record for wetness in Europe’s 3rd largest wheat country. Field conditions in United Kingdom were so wet for planting last fall that producers could not get into the field. The expectations is that the wheat area may be significantly reduced for the 2013 winter wheat harvest. December flooding may further damage UK wheat potential," they conclude.
31/12/12 -- Soycomplex: Jan 13 soybeans closed 5 1/4 cents lower at USD14.18 3/4; Mar 13 beans finished 8 1/2 cents lower at USD14.09 1/2; Jan 13 soybean meal ended USD7.10 lower at USD420.60; Jan 13 soybean oil closed 22 points higher at 49.16. For the month of December front month beans were 20 cents lower, with meal down USD21.80 and oil down 25 points. For the year beans closed with gains of USD2.20 (+18%), meal added USD111.20 (+36%) whilst oil slumped 293 points (-6%). The USDA announced the sale of 140 TMT of soybeans along with 30 TMT of soyoil, both for 2012/13 delivery to "unknown" destinations. This was on top of the 165 TMT of soybeans sold to China and 30 TMT of soyoil sold to "unknown" announced on Friday. Weekly export inspections for soybeans came in at 967 TMT versus 1.24 MMT a week ago. Year to date inspections at just over 21 MMT are up 36% on last year. South American weather is little changed, with pockets of dryness in northern Brazil a concern, although central and southern areas are getting favourable rains. Argentina got rain over the weekend, but "dry weather is expected in most areas for the rest of the week, which should favour late soybean planting soybeans and ease wetness," according to MDA CropCast.
Corn: Mar 13 corn closed 4 1/2 cents higher at USD6.98 1/4; May 13 corn closed 3 1/4 cents firmer at USD7.00 1/4. For the whole of December that puts front month corn a quarter of a cent shy of 50 cents lower. For the whole of 2012 corn was up 51 3/4 cents, or +8%. There was some optimism late in the day that a deal would get done to avoid the "fiscal cliff" which added a bit of support to corn. Even so, weekly export inspections were pretty dire at just over 200 TMT, even for a holiday week. Year to date inspections are down 53% on last year at only 6.5 MMT. "More unwanted rain occurred last week in Buenos Aires, Argentina, where persistent heavy rains have hindered corn planting," say Martell Crop Projections. "The province received over 1 inch of rainfall, but up to 3 inches locally with strong thunderstorms. December rainfall has been two to three times normal," they add. Funds were said to have been modest net buyers of around 2,000 corn contracts on the day. Last week's commitment of traders report showed them having cut their net length to the smallest in almost six months during December.
Wheat: Mar 13 Chigaco wheat closed 3/4 of a cent lower at USD7.78; Mar 13 Kansas wheat ended 5 cents higher at USD8.31 and Mar 13 Minneapolis wheat fell 2 1/4 cents to 865 1/2. For the month of December Chicago wheat was 66 3/4 cents lower, but over 125 cents higher, +19%, on the year. Weekly export inspections were poor at 211 TMT, and little more than half of last week's total. Year to date inspections are down almost 14% on year ago levels at just over 14 MMT. It is anticipated that exports will pick up in the first half of 2013. Last week's export sales total was the best in almost two years. Iraq are tendering for wheat, with the results expected around the middle of the month, the trade will be looking to see how competitively US wheat is offered. Last week's commitment of traders report shows spec money holding a large short in Chicago wheat, the largest in fact for seven months, which may see them buying on any further dips. It also leaves the market vulnerable to an upside correction. "Snow across the central Plains and south central Midwest will increase snow cover, improving protection for the wheat crop from winterkill. The snow will also slightly improve soil moisture across the central Plains once it melts, but much more precipitation will be needed to put a significant dent in the extreme drought," note MDA CropCast.
31/12/12 -- EU grains closed the month as they spent most of it - lower - with Jan 13 London wheat down GBP1.50/tonne to GBP205.25/tonne, May 13 was also GBP1.50/tonne lower to GBP210.25/tonne and new crop Nov 13 fell a more modest GBP0.30/tonne to GBP186.45/tonne. Jan 13 Paris milling wheat fell EUR1.00/tonne to close at EUR250.25/tonne.
December wasn't a good month for the grains, with heavy fund selling across the pond dragging European markets lower too. Front month London wheat fell GBP18.50/tonne during the course of the month, whilst Paris wheat slumped EUR19.25/tonne. New crop Nov 13 London wheat fared somewhat better, declining by GBP11.05/tonne.
For the record, Paris corn was down EUR15.25/tonne on the front month during December, with Paris rapeseed tumbling EUR20.50/tonne and Paris malting barley down EUR19.00/tonne.
Even with these losses most of the EU grains are still showing healthy price gains year-on-year, with London wheat up GBP53.00/tonne (+35%); Paris wheat up EUR47.74/tonne (+24%); Paris corn up EUR41.00/tonne (+21%) and Paris rapeseed up EUR18.00/tonne (+4%). Only Paris malting barley shows a price decline versus 12 months ago, down EUR12.50/tonne (-5%).
Fresh news was scarce and volume predictably light on the last day of 2012 with many participants taking the opportunity to extend their festive break a little. Concern over the US fiscal cliff issue running right to the wire are keeping traders nervous and discouraging the establishment of fresh longs heading into year-end.
Whether that changes and it's a case of new month, new year, new money when the markets re-open we will have to wait and see, although it may be worth noting that EU grains have developed a habit of closing higher on the first day of trading in a new year recently (certainly that has been the case in each of the last four years).
"Welcome rain and snow fell in the southern Great Plains on New Year's Eve that will benefit hard red winter wheat. The 0.78 inch of moisture received in December compares to 3 inches all together in the fall, September-November, in the top bread wheat states," says Martell Crop Projections.
"Quiet weather is expected to follow in early January with no important precipitation in the Great Plains, Midwest or Mid South. Temperatures are expected to warm strongly in early January in the Upper Midwest," they add.
Closer to home "Recent warmer weather across Europe has melted much of the snow pack that had developed early in December. Snow cover is now limited to eastern Romania and Bulgaria, with most major wheat and rapeseed areas snowfree.
"With warm weather expected to continue across the region over the next 10 days, snow cover will remain very limited across Europe. This will leave the wheat and rapeseed crops vulnerable to any future winterkill threats," say MDA CropCast.
Iraq are using this latest break in prices as an opportunity to buy wheat, issuing a new tender to purchase at least 50 TMT although they will probably buy significantly more. The US, Canada, Australia, Russia, Romania, Kazakhstan, Ukraine and Germany are the preferred countries of origin in the tender which closes on Jan 13.