Morning Markets

The overnight grains show surprisingly little change this morning, with corn, beans and wheat down only fractions. I'd expect them to work lower than that as the session wears on, given the firm dollar and weaker crude this morning.

The dollar is higher after the release of the minutes of the Fed's latest meeting point to asset sales in the very near future.

The pound is under pressure (nothing new there then), falling below 1.56 against the greenback, after UK public finance data for last month turned out to be much worse than expected.

South American crops seem to be just about made. The Argy Ag Ministry said that corn production there will come in at 19-21 MMT, well above the USDA's latest effort (nothing new there either).

There is a bit of a question mark over soybean production in Brazil, certainly the crop is going to be record large, for now it's a case of exactly how large? With most official estimates in the 66-68 MMT region, I would tend to side with one or two of the other private reports suggesting that 64 MMT might be nearer the mark.

Either way it's an enormous crop, which makes the logistics of physically transporting it to where it needs to be a major headache. There are also problems for corn, with storage in very short supply. So despite the size of the crops down there, there has to be a fairly major question mark over quality.

With beans and corn getting harvested in the midst of heavy rains, coupled with the lack of proper storage facilities, there could be some significant quality issues down the line.

Strategie Grains say that the EU-27 will produce 134.7 MMT of soft wheat in 2010, that's nearly 5 MMT more than last season, and less than 4% away from 2008's all time record soft wheat output of 140 MMT. All wheat production will come in at 143.5 MMT this year they say, compared to 138 MMT in 2009.

"Severe drought in China’s leading corn producing areas may jeopardize the new crop, due to be planted in the spring. A 6-7 inch moisture deficit built up in Jilin, Hebei, Liaoning and Inner Mongolia late in the summer and fall," says Gail Martell of Martell Crop Projections.

That could impact on corn production later this year, and that could be interesting if it subsequently transpires that official Chinese corn crop estimates for 2009 were in fact wildly overestimated, which many believe was the case.

Kazakhstan is wasting no time forging relationships with potential grain customers in the Far East. The country recently agreed a deal with China to construct a grain terminal on the border of the two countries, and transship grain to SE Asia via the Chinese rail network. The Kazakhs are said to be in talks to supply South Korea, and even Japan with wheat later in the year.

Bring it on, the more Kazah wheat that travels east rather than west the better I'd say.

Crude oil is a little weaker this morning, down 66c at USD76.67/barrel ahead of the US Energy Information Administration's release of it's weekly stocks data later this afternoon. inventories are seen rising 1.5-2.2 million barrels.