Early Morning Thoughts

The overnight markets are mixed, with beans higher, corn up a tad and wheat a little lower.

China bought 205,000 MT of new crop US beans last night. The USDA will report on weekly export sales at 13.30 BST. For soybeans estimates range from 300,000 to 700,000 MT, for corn 700,000 to 1,000,000 MT, and for wheat 350,000 to 550,000 MT.

An announcement by the CFTC that it was going to get tough and enforce the 6,500 contract limit on two companies that regularly flouted regulations has got the wheat market in a panic.

The companies concerned, Deutsche Bank and one other un-named entity will now no longer be able to legally evade the trading limits for wheat. One report suggests that the two are currently long of 60,000 contracts.

The Canadian grain harvest is said to be a month behind normal, due to a combination of late planting and unfavourable weather conditions. That potentially leaves it very vulnerable to a hard freeze.

Monsoon rains continue to be poor across many parts of northern India, where food prices have already risen by around 30%. The government are said to be set to release a reported 3 MMT of wheat and 2.5 MMT of rice onto the domestic market in an effort to quell further price rises.

Indian rice production is said to be 10 MMT down in 2009, whilst sugar output will fall to 15 MMT (7.5 MMT below consumption) and pulse output is likely to be only 13 MMT compared to demand of 17-18 MMT.

A shortage of these basic staples is expected to increase demand for wheat, although it would seem that government reserves are only sufficient to last until Christmas, three months before harvesting begins.

We also have the small matter of where is the money going to come from to buy in this shortfall in basic food commodities, in a country with a population of over one billion.

Crude oil is up after a US Energy Dept report showed that stocks fell by a very surprising 8.4 million barrels last week.