The Morning Paper

24/08/12 -- The overnight electronic market is doing it's best to recover some of last night's losses I see, with beans 12-17 cents firmer, corn up 3-5 cents and wheat up a similar amount.

Toepfer have released some crop production estimates, pegging the EU-27 rapeseed crop at 19.64 MMT, which they make as being a 3% increase on last year (and more than 1 MMT higher than the USDA currently say). This is almost entirely due to a sharp rebound in German output to 5.16 MMT, up by almost a third on last year's 3.89 MMT, Last season's crop was a total bummer you will recall.

Interestingly their estimate is miles above the German Farmers' Association figure of only 4.4 MMT released earlier this week. Now far be it from me to suggest that the German equivalent of the NFU would be lie through their back teeth in the interest of their members, so I won't. Let's just say that their estimate is well below everybody else's.

Toepfer peg the UK rapeseed crop at 2.49 MMT, which would be over 10% down on last year's bumper harvest, and probably about right.

Elsewhere the French oilseed institute Cetiom say that the rapeseed crop there will exceed 5.45 MMT, a modest increase on last year's 5.37 MMT, and slightly above the USDA's 5.36 MMT and FranceAgriMer's 5.3 MMT.

Toepfer see Europe's fourth largest rapeseed producer, Poland, as seen having a crop of 1.85 MMT, about the same as last year and 200,000 MT above the USDA's estimate.

Toepfer also estimated Germany’s 2012 wheat crop at 22.8 MMT vs. 22.7 MMT in 2011 and the USDA's 22.5 MMT.

The results of the Pro Farmer Crop Tour are out this afternoon and may provide some market direction at the end of a week that hasn't had a great deal of fresh news. As ever whether the funds fancy trimming some of their longs, or adding to them, going into the weekend is likely to be the determining factor.

The European debt storm clouds seem to be gathering again, with France and Germany in particular showing signs of reaching the end of their tether with Greece. Citigroup yesterday said that there was a 90% of a Grexit within the next 12-18 months. Jesus, do we still have to wait that long for a resolution to this whole sorry mess?

This is still the number one factor that could cause a major market reversal in my humble opinion, if it ignites a major flight to safety, as I think it would.

Yes, I know about the Russian drought, the US drought, and all the other underlying and undeniably bullish market fundamentals. With those in place, and Greece, Spain, Italy and the rest all managing to keep their heads above water and fund money continuing to support the market then we could most certainly go higher than this. Even a lot higher.

However, a messy and disorderly Greek exit from the eurozone, and the risk of a very swift contagion effect would surely see a large scale fund withdrawal from anything deemed even the slightest bit risky. World stock markets would collapse, and the dollar would surge.

None of those things would be beneficial for the grain markets. Consider how many days do you read "Chicago soybeans closed 25 cents higher. Funds were net sellers of 10,000 contracts on the day." The answer is hardly ever. If funds are net sellers then the market goes down, regardless of the fundamentals. And likewise if they are net buyers.