The Early Vibe

04/01/12 -- We've seen some fairly dramatic price increases in the grains sector in the past couple of weeks on the back of this South American weather scare. The question I am interested in is just how justified are they?

Despite downgrading their Argy corn crop production estimate to 24.5 MMT yesterday, Cropcast's forecast is still an all-time record.

Brazil's grain association Abiove still peg the country's soybean crop higher than last year at 74.6 MMT, whilst Celeres go a million tonnes higher than that.

Meanwhile wheat is going up "just because" on the back of rising corn despite the lack of a bullish storyline of it's own and ending stocks estimated within less than 2 MMT of the highest on record at the end of 2011/12.

Kansas winter wheat is now rated 53% good to excellent from 47% a month ago and conditions in Oklahoma in the top two categories have jumped to 63% from 56% in late November, according to the USDA yesterday.

If there REALLY is a crisis then I'm struggling to see it right now.

That's not to say that the South American situation won't get worse, but prices where they are aren't perhaps really justified at this exact moment in time.

Meanwhile it remains to be seen how US domestic demand for corn holds up now that the ethanol blenders' tax credit has expired and the duty on imports has been lifted.

On top of that there's the not insignificant matter of the Eurozone debt crisis which the market seems to have almost forgotten about.

Jan Paris malting barley and corn expire tomorrow and Jan milling wheat next Tuesday, followed by Jan soy complex contracts next Friday. Sandwiched in amongst that are weekly export sales from the USDA on Friday (and next Thursday) plus the USDA's WASDE also next Thursday.