Morning Ramblings

The overnights are a sea of green again this morning I see with beans 10-12c higher, corn up 1-2c and wheat 4-8c higher.

As I type this the gap between front month September wheat and the second month of December has widened to a sizable 36 3/4 cents. There were sizable deliveries against the September contract again yesterday for the third day in succession.

To me that indicates that the cash market isn't as strong as the bullish rhetoric suggests, and that the physical wheat is out there, and in volume.

As someone remarked yesterday, Egypt haven't suddenly cranked up their wheat consumption, those orders were going to go somewhere. The only thing that has fundamentally changed is that they are going to the US rather than Russia or the Black Sea. And the US certainly have plenty of it to sell.

So we've reached a symbiosis, and America maybe more by luck than judgement suddenly find themselves as flavour of the month for a while, where's the big deal?

Putin's comments that the Russian export ban will last until next harvest might not in reality be all they seem to be. He is after all the head ground keeper and he can move the goalposts as many times as he wants, whenever he wants.

Has anyone considered that a grain export embargo that gets lifted in January encourages farmers and long-holders to hang onto their grain until then, and subsequently sell it for export at what they perceive will be "big bucks". A ban that extends until the 2011 harvest means that these long-holders are much more likely to sell in the coming winter months. It removes much of the incentive to carry stocks into the new year.

Recent developments have been little more than a well-deserved poke in the eye for the likes of Egypt, and a reminder of the danger of putting too many eggs in one Russian basket.

Will that be a lesson learnt, or will they immediately switch right back as soon as there's some cheaper wheat on offer? I think we all know the answer to that one.

Another point worth considering is what is going to happen to all these existing cheap Russian sales that aren't going to get fulfilled this winter? I don't think that that one has been resolved yet.

If the Russians take a step back and look at the big picture, and at least allow some of these to be rescheduled then it may be that unwittingly Egypt has plenty of stuff on the books for second half 2011 already.

Once we get into the 2011/12 marketing year we could easily be looking at even larger world wheat stocks than the "burdensome" levels of last season. The last time we saw a price spike like this, albeit this one is not quite so large, growers amongst the major exporting nations responded by increasing output dramatically:

Exporter Output (MMT) 2007/08 2008/09 Change
Australia 13.57 21.42 + 7.85
Canada 20.05 28.61 + 8.56
EU-27 120.13 151.14 +31.01
Russia 49.40 63.70 +14.30
Ukraine 13.90 25.90 +12.00
US 55.82 68.02 +12.20
Top six exporters 272.87 358.79 +85.92

Even if we were to only get a quarter of that increase this time round we'd be looking in the dictionary for words to supersede "burdensome" and "awash".