Chicago Grains Tuesday Morning

07/08/12 -- The overnight market sees wheat 4-6 cents firmer, with corn up 3-5 cents and soybeans mostly 10-14 cents higher - with the exception of front month August which hovers around unchanged.

Wheat gains from ideas of reduced Black Sea production, and thus increased US export hopes, particularly in the final three quarters of the 2012/13 season after the initial rush of Q1 sales has passed from the likes of Russia and Ukraine.

Late last week we had a US corn production estimate of just 9.57 billion bushels from Farm Futures magazine, which would be the lowest output since 2002 despite the largest planted area in 75 years. Their anticipated yield figure of 114 bpa would be the lowest since 1995.

At this point it is worth considering that less than two months ago we were potentially looking at what was set to be easily a record US corn crop. Using the USDA's June acreage report's 96.4 million acres, assuming an average 8% abandonment rate and the then expected 166 bpa yield we'd have been talking a crop in excess of 14.7 billion bushels this year, more than 5 billion more than now looks to be on the cards. Which is coincidentally enough to keep the US ethanol juggernaut on the road for another 12 months.

If Farm Futures are correct, then the US will now use more than half of this year's corn crop to make ethanol, based on the USDA's July S&D estimate of 4.95 billion bushels of corn demand coming from that particular sector in 2012/13.

No wonder then that there are growing calls for the ethanol mandate to be partially or even fully waivered in 2013. How much difference that would make to the two-headed monster that is the US ethanol industry is open to debate. It would certainly make for an interesting experiment, if maybe a potentially unlikely one in an election year.

Soybeans meanwhile have paused for breath, having rallied by almost two thirds since mid-December, with the faint glimmer of hope that decent August rains could still finally help the crop make some kind of decent yield.

If those rains fail to materialise and we are left with something closer to Farm Futures Magazine's estimated 2.696 billion bushel crop then who knows where prices might go yet? It's been abundantly clear for some time that the US is just about the only seller of soybeans in the world who's shop is still open.

Brazil exported 22.92 MMT of soybeans between Jan/Jun this year - some 87% of the expected total soybean exports for the entire year. Argentina too are widely considered to be out of the market. Meanwhile China keep coming back for more (they bought 106 TMT of US soybeans just yesterday) and are expected to import around 58-60 MMT of soybeans in 2012. Incidentally, some estimates for their 2013 requirements are in excess of 70 MMT.

Planting of Brazil's 2013 soybean crop won't begin for more than a month yet, with harvesting of the earliest beans still five months away, and all sorts of hurdles to get over before those particular combines start rolling.