Chicago Market Consolidates Heading Into The Weekend
06/07/12 -- Soycomplex: Jul 12 Soybeans closed at USD16.19 3/4, down 6 3/4 cents; Nov 12 Soybeans closed at USD15.05 3/4, down 20 3/4 cents; Jul 12 Soybean Meal closed at USD471.60, down USD2.70; Jul 12 Soybean Oil closed at 53.27, down 88 points. For the week as a whole Jul 12 beans were 107 cents higher, with Nov 12 rising 78 cents. Jul 12 meal was up USD35.60 and Jul 12 oil gained 106 points. The USDA reported strong weekly export sales of a combined 1.76 MMT. Of that total almost 300 TMT was old crop with the remaining 1.46 MMT new crop, with China/unknown the usual featured buyer. In addition, the USDA also today reported the sale of 120,000 MT of old crop soybeans to China under the daily reporting system. "Strong cooling is predicted in the Midwest beginning Sunday, and persisting for several days, with temperatures falling 15 – 20 F to near normal levels for the Midwest - into the lower 80s F for highs and 60-65 F for lows. Amazingly, not much rainfall is expected in the Midwest however, with cool and dry Canadian air taking over. Perhaps one-quarter inch of rain would occur. Very heavy rainfall up to 3 inches is predicted in the Mid South where the cool front stalls out," say Martell Crop Projections.
Corn: Jul 12 Corn closed at USD7.43 1/4, down 24 3/4 cents; Dec 12 Corn closed at USD6.93, down 15 1/2 cents. Profit-taking and consolidation ahead of the weekend was only to be expected. Even so Jul 12 corn added more than 70 cents for the week, with Dec 12 gaining 58 1/4 cents. There is some evidence of prices choking off demand however. Weekly export sales of just 19,300 MT of old crop corn were a marketing-year low. With only 134,200 MT of new crop being sold this week, we have a combined total of 153,500 MT - below even the fairly modest trade expectations of 200-500 TMT. The trade is focused on next Wednesday's USDA WASDE report, and how much US corn yields will be cut. The average trade estimate is now lining up around 147 bu/acre, although the range of estimates is pretty wide with some below 140 and others above 150 bu/acre. The USDA do have a tendency to err on the side of caution, although this isn't always the case. It will also be interesting to see what they say with regards to demand. We know that some ethanol plants are taking downtime due to high corn prices, and scarce availability, plus falling crude oil levels. WTI crude closed more than USD3.00/barrel lower tonight after weak US jobs data and amid expectations that a Norwegian oil strike would end soon. There are also unconfirmed rumours around of Brazilian corn making its way into southeastern US states.
Wheat: Jul 12 CBOT Wheat closed at USD7.91 1/4, down 31 1/4 cents; Jul 12 KCBT Wheat closed at USD7.89 1/2, down 37 3/4 cents; Jul 12 MGEX Wheat closed at USD9.13 3/4, down 24 3/4 cents. For the week overall Chicago wheat added 52 1/4 cents, Kansas 51 cents and Minneapolis 49 3/4 cents. Weekly export sales of 418,900 MT were in line with trade estimates. Wheat lacks some of the underlying bullish impetus that corn and soybeans have, and is more of a follower than a leader. Black Sea production and exports are expected to be sharply lower in 2012/13 though, and there are some quality concerns emerging over the state of the European wheat crop which is getting far too much rain. Next week's USDA report is more about potential corn and soybean yields this year rather than wheat prospects. Informa peg US all wheat production at 2.287 billion bushels, 23 million down on last month. That's the equivalent of 62.24 MMT which is 1.44 MMT more than the USDA predicted in June. EU-27 wheat production could increase from the 131 MMT forecast last month, although Russia's will probably be reduced from the existing 53 MMT to around 50 MMT. Japan purchased 60,175 MT of Australian milling wheat in a tender today. It would normally buy a combination of US, Australian and Canadian wheat.
EU Wheat Posts Strong Weekly Gains
06/07/12 -- EU grains closed mostly a little lower to end the week with expiring Jul 12 London wheat going off the board unchanged at GBP204.25/tonne and Nov 12 GBP1.25/tonne lower at GBP180.50/tonne. Aug 12 Paris wheat fell EUR1.75/tonne to EUR243.25/tonne whilst Nov 12 was also EUR1.75/tonne lower at EUR242.00/tonne.
Today's dips mirrored a lower move to end the week across the pond in Chicago. Probably only to be expected after a week of strong gains in the midst of a weather market as we head into the weekend.
For London wheat, a July future has never gone off the board this high before as it closed the week GBP16.25/tonne higher than it began it. The Nov 12 future put on GBP9.50/tonne compared to last Friday's close.
Aug 12 Paris wheat was EUR14.25/tonne higher on the week, and Nov 12 rose EUR15.25/tonne.
Excessive rains continue to fall across much of the UK and on the continent too, delaying the harvest and causing some real quality concerns. Milling wheat premiums have really jumped in the past couple of weeks.
US drought concerns continue to drive the market, having sparked a real feeding frenzy this week. Although in the case of wheat the US winter harvest is probably now more than three quarters complete and spring wheat crop conditions are very promising at 71% good/excellent.
Corn is what is really getting the market excited, even though a record crop could still be on the cards according to the FAO and IGC, by virtue of the large increase in planted area this year. The USDA will issue their own revised estimate next Wednesday.
Following yesterday's news that the BoE was increasing QE and that the ECB was lowering interest rates, the pound closed the week at 1.26 against the euro, it's highest level since Nov 2008. That won't help UK exports too much in the new 2012/13 season given that Europe is far and away our largest wheat buyer.
The EU-27 finished the 2011/12 marketing campaign exporting 12.5 MMT of wheat (down around a third from the 18.5 MMT exported in 2010/11), 2.9 MMT of barley (-37%) and 3 MMT of corn (+200%).
Extreme volatility remains. The market has moved up a long way in a relatively short period of time, with Nov 12 London wheat up 22% and Nov 12 Paris wheat up almost 24% since mid-May. Chicago corn has gone from being at its lowest levels in 17 months on Jun 1st to being at its highest in more than a year as of Thursday night's close.
USDA Soybean Export Sales Top Expectations
06/07/12 -- The USDA's weekly export sales came in miles above trade expectations of 400-650 TMT for soybeans at a combined 1.76 MMT. Of that total almost 300 TMT was old crop with the remaining 1.46 MMT new crop.
As ever, China took the lion's share of the old crop whilst unknown/China booked all of the new crop. To top that impressive performance off, the USDA also today reported the sale of 120,000 MT of old crop soybeans to China under the daily reporting system.
Corn sales meanwhile were a paltry 19,300 MT of old crop, a marketing-year low, plus only 134,200 MT of new crop making a combined 153,500 MT - below even the fairly low expectations of 200-500 TMT.
There are unconfirmed rumours around of Brazilian corn being shipped to the US due to price differentials and tightness in availability of old crop US corn. Stories also abound of a possible lowering of the US ethanol mandate, which would further impact on corn demand if it turns out to be true.
Weekly wheat export sales meanwhile were in line with trade expectations of 300-450 TMT at 418,900 MT.
Chicago Soybeans Within Sight Of All-Time Highs
05/07/12 -- Soybeans: Jul 12 Soybeans closed at USD16.26 1/2, up 54 1/4 cents; Nov 12 Soybeans finished at USD15.26 1/2, up 51 3/4 cents; Jul 12 Soybean Meal ended at USD474.30, up USD20.20; Jul 12 Soybean Oil closed at 54.15, up 120 points. The day after the market has been closed for Independence Day, frequently coinciding with an ongoing weather market, is often spectacular. Today's price action didn't disappoint with Jul 12 soybeans surging higher from the opening and not failing by much to hit the all-time front month high set the day before the 2008 Independence Day holiday of USD16.58 (incidentally, on the first day back after the holiday in 2008 Jul beans closed 69 cents down at USD15.89). Funds were said to have been net buyers of around 13,000 soybean contracts on the day along with 3,000 meal and 4,000 oil. All bean positions posted new contract highs. The US drought is ongoing, although at least temperatures are expected to cool down significantly across the weekend. There isn't much rainfall relief in the forecast however. There may still be a small window of opportunity for US soybeans to make a decent crop though, the most important period for them is the pod filling stage, which isn't due to start for another 3 weeks or so. Decent rains then could still bring beans, originally a desert crop, back from the dead.
Corn: Jul 12 Corn closed at USD7.68, up 49 1/4 cents; Dec 12 Corn closed at USD7.08 1/2, up 34 cents. Funds clearly made their minds up what they wanted to do across the Independence Day holiday, coming in for an estimated 27,000 corn contracts on the day. That would place them adding around 60,000 to their net long position so far in this holiday shortened week and over 130,000 in the past fortnight. A plethora of private analysts are now placing the US corn yield in the 145-149 bushels/acre region versus the USDA's current 166 bushels/acre estimate up for revision next week. It remains to be seen how, and indeed if, they will attempt to tackle this problem without estimating ending stocks too low. One solution may be to lower demand from the ethanol sector under pressure from rising corn prices and a sharp slump in crude oil values over the last couple of months - even allowing for the appreciation of the past week. US ethanol production for the week ending June 29 was 36 million gallons, the lowest weekly total of the year so far. There is some talk of the ethanol mandate being changed to compensate for substantially lower than anticipated production this year. Exports could also take a hit, with Brazil seen flexing its muscles on the international stage following a bumper second crop this year. Conab yesterday raised their Brazilian corn production estimate to 69.5 MMT and increased export potential by 1 MMT to 12 MMT.
Wheat: Jul 12 CBOT Wheat closed at USD8.22 1/2, up 40 1/4 cents; Jul 12 KCBT Wheat closed at USD8.27 1/4, up 42 1/4 cents; Jul 12 MGEX Wheat closed at USD9.38 1/2, up 52 1/2 cents. This was the highest close for a front month in Chicago wheat since April 2011. Funds were said to have been estimated buyers of a net 6,000 Chicago wheat on the day, that would place them net long around 60,000 contracts. Having been closed for a day and a half, the wheat market drew support from sharply higher European wheat futures during this period. Much lower yields than last year out of the Black Sea look like potentially ruling out the usual suspects amongst the "pile it high and sell it cheap" brigade for much of the 2012/13 season. Demand out of North Africa, Asia and the Middle East however remains sluggish, with few tenders around at the moment. The Taiwan Flour Millers' Association is tendering for 44,250 MT of US milling wheat tomorrow. Jordan cancelled a 100,000 MT tender for optional origin wheat earlier in the week. Trade estimates for tomorrow's weekly export sales report are 300 to 450 TMT.
EU Wheat: It's Contract Highs All Round Once More
05/07/12 -- EU grains finished higher again with Jul 12 London wheat up GBP3.25/tonne to GBP204.25/tonne, and new crop Nov 12 also GBP3.25/tonne higher to close at GBP181.75/tonne. Aug 12 Paris wheat rose EUR9.00/tonne to EUR245.00/tonne, whilst Nov 12 was EUR6.25/tonne firmer at EUR243.75/tonne.
All made fresh contract highs. For both Jul 12 London wheat and Aug 12 Paris wheat this was also the highest close for a front month since the all-time highs of May 2011.
The ongoing US drought and it's likely impact on corn production there is the main catalyst, along with sharply lower yields out of the Black Sea this year.
In the US "The heat wave will continue a few more days, before welcome cooling occurs. Chicago, Illinois' 5-day maximum temperatures, beginning today and continuing through Monday, are as predicted as follows: 105 F, 103 F, 90 F, 80 F, 80 F," say Martell Crop Projections. Rainfall chances in Chicago are no better than 20% from Saturday through Sunday night, they add.
Meanwhile Ukraine's Ag Ministry report that early yields are some 37% down on this time last year. Their The Russian counterparts say that so far yields there are down 39% on last year.
Things are nowhere near as bad in Europe however. FranceAgriMer today raised their estimate for the 2012/13 French wheat crop to 38 MMT, versus 36 MMT last year, an increase of 5.5%. The French barley crop has done hugely better than the one dogged by drought 12 months ago and is now estimated at 11.2 MMT versus 8.8 MMT last year, an increase of 27%.
The Bank of England announced a further GBP50 billion worth of QE in one more effort to stimulate lending and boost the economy. The ECB also announced that they were lowering interest rates by a quarter to 0.75%.
Both moves were widely expected by the market, but still applauded nevertheless. Exactly why the BoE think that GBP50 billion will make a difference where the GBP275 billion that went before it hasn't is unclear.
Ditto the ECB. Interest rates at 0.5% in the UK don't appear to have made much of an impact so why will going from 1.0% to 0.75% create a lot of stimulation on the continent? Both smack of one desperate last throw of the dice before some much tougher decisions need to be taken.
EU Rapemeal Prices
05/07/12 -- Rapemeal prices on the continent are extremely steady nearby once again, although forward prices are a little easier having some of yesterday's in-built protection removed.
Latest guide prices for EU rapemeal today, basis FOB Lower Rhine in euros/metric tonne, with change from previous trading session:
| Jul12 | unq |
n/a |
| Aug12 | 268.00 |
+5.00 |
| Sep/Oct12 | 263.00 |
+1.00 |
| Nov12/Jan13 | 259.00 |
-2.00 |
| Feb/Apr13 | 255.00 |
-1.00 |
| May/Jul13 | 230.00 |
-3.00 |
| Aug/Oct13 | 197.00 |
-1.00 |
| Nov13/Jan14 | 208.00 |
+4.00 |
Early Call On Chicago
05/07/12 -- Welcome back to the early call on Chicago. I, for one, kind of miss it. Trust the CME Group to go and spoil it with their 21 hours a day trading money-making machine.
Still, we're stuck with it I suppose. Well, today always threatened to be explosive, and with an hour and a half to go to kick-off time it's looking unlikely to disappoint.
The European markets are doing their best to point the Septics in the right direction, with London and Paris wheat both sharply higher despite crop conditions here looking generally favourable.
A quick scan across the news wires sees phrases like "dust bowl" and "decimated" being used this morning, so the only thing surprising about the early call of 20-30 cents up on soybeans, 10-15 cents up on wheat and 10-20 cents up on corn is that they aren't even higher. They may well be soon after the opening.
When the bulls are this ravenous there's only one thing you can do, stand back and let them gorge themselves. They will inevitably overeat, they always do, so just make sure that you also stand well back when the projectile vomiting begins.
The market is almost certainly going higher short-term, but what about medium-term and beyond? Almost universally unopposed rhetoric that it's going up and up is where we are going to stay always makes me nervous.
Especially when that rhetoric is trotted out in the very month when the market frequently tops at the height of mass weather-related hysteria.
For one, it's never gone up and stayed there before, not even in 1988, which is the year that we have supposedly been carried back in time to.
For two, the cure for high prices is high prices, they say. The higher we go the more demand will be choked-off. You can ask a dairy farmer or ethanol producer about that if you're in doubt. A fillip of high prices is also of course increased production. Every farmer in South America is currently thinking, "blimey, put me down for a slice of this cake."
So, pardon me if I don't buy into the longevity of this particular rally, no matter how good and utterly convincing the arguments that the only way is up are.
What will cause a sudden reversal, and when it will happen, sadly I don't know.
The FAO have today cut their forecast on US corn production this year to 350 MMT. Still a record. And who is going to want it all is it's USD8.00/bushel, or even more as some are now suggesting?
CONAB have raised their Brazilian corn crop estimate for 2011/12 to 69.48 MMT, thanks to a bumper second crop and increased their export estimate to 12 MMT, which is 2 MMT more than the USDA currently project.
They've also increased their Brazilian soybean crop estimate to 69.48 MMT, some 2.5 MMT more than the USDA say.
EU Wheat Nudges Higher In Quiet Trade
04/07/12 -- EU grains closed mixed but mostly higher in a pretty subdued session with America closed for the Independence Day holiday. Jul 12 London wheat ended GBP2.75/tonne higher at GBP201.00/tonne and Nov 12 was GBP0.50/tonne higher at GBP178.50/tonne. Aug 12 Paris wheat closed EUR2.00/tonne firmer at EUR236.00/tonne, whilst Nov 12 was EUR1.50/tonne higher at EUR237.50/tonne.
Jul 12 London wheat goes off the board on Friday. Open interest is very limited and the few remaining shorts are getting squeezed out as longs say "OK, deliver against it then."
The wet weather looks like continuing to delay harvesting, although there are some reports around today of rapeseed being sprayed in readiness, grains look a good few weeks away yet.
It's the polar opposite in the US where trade estimates for US corn yields are being cut on a daily basis on the back of heat and dryness.
Ukraine's Ag Ministry report that 3 MMT of winter grains have been cut so far, with yields only coming in at 1.76 MT/ha, some 37% down on this time last year. That makes the official grain harvest estimate of 50 MMT this year, down only 12% look unlikely even if a second successive bumper corn crop is in the field.
The Russian Ministry meanwhile said that they'd harvested 5.8 MMT of winter grains so far, with yields seen down 39% on last year. Quality there is said to be good, however.
Russian analysts IKAR said that domestic grade 4 milling wheat prices at Black Sea ports there were up 25% in a week due to the outlook for sharply lower production this year.
Jordan said that it was postponing it's tender for 100,000 MT of optional origin wheat due to lack of offers.
Lunchtime Meanderings
04/07/12 -- The US market is closed for the Independence Day holiday, so there isn't too much action going on in Europe without Big Brother available to hold it's hand.
Last night's close in Jul 12 CBOT soymeal of USD454.10 was the highest close for a front month in history, just surpassing the previous record of USD453.90 set on 11th July 2008. Out of interest the all-time high for soybeans was set on both the 2nd and 3rd of July 2008 at USD16.45 3/4.
We have a little way to go to beat that yet, although it's only a fraction over one limit up move away. There are probably many more who would currently bet on there being plenty of time for that to happen yet this month rather than not. Me included.
Perhaps the most bearish factor in the soya market at the moment is that there are no bearish factors. Then again, I've just thought of a one. There is a strong historical trend for the soya market to top out in Jun/Jul, just as the market often bottoms in Jan/Feb.
Of course it doesn't happen every year, if it did that would be boring and we'd all be living in the Maldives. It may be worth considering though that the bottom of the market this year was in January (hums theme from the Twilight Zone).
Want to know what the soymeal seasonal chart looks like in comparison to this year? It looks like this: CBOT Soymeal.
Pretty interesting. Note how the more recent 5 and 10-year lines show a higher degree of volatility than the 15-year average. For what it's worth, the 20-year average shows less volatility again, and the 30-year average even less. The difference between the top and the bottom of the market is getting larger it would seem with each passing year.
Note also that these highs and lows are measured in percentage terms. It would be expected that the difference between the high and low in dollar terms would be larger in a year when soymeal averages say USD400/tonne as opposed to USD250/tonne. These are percentage differentials however, which seem to back up the notion that our markets have never been more volatile than they are now.
"The four most dangerous words in investing are: It’s different this time.” - Sir John Templeton, legendary investor.
EU Rapemeal Prices
04/07/12 -- Rapemeal prices on the continent today see deferred months starting to reduce some of the differential between them and the nearby positions. Chicago soymeal set contract highs last night, adding support to rapemeal prices.
Guide prices, basis FOB Lower Rhine in euros/metric tonne, with change from previous session:
| Jul12 | 275.00 |
-1.00 |
| Aug12 | 263.00 |
-1.00 |
| Sep/Oct12 | 262.00 |
+2.00 |
| Nov12/Jan13 | 26100 |
+9.00 |
| Feb/Apr13 | 256.00 |
+6.00 |
| May/Jul13 | 233.00 |
+6.00 |
| Aug/Oct13 | 198.00 |
unch |
| Nov13/Jan14 | 204.00 |
+1.00 |
Chicago Market Sets Fresh Highs
03/07/12 -- Soybeans: Jul 12 Soybeans closed at USD15.72 1/4, up 40 cents; Nov 12 Soybeans closed at USD14.74 3/4, up 36 3/4 cents; Jul 12 Soybean Meal closed at USD454.10, up USD11.60; Jul 12 Soybean Oil closed at 52.95, up 77 points. Soybeans have only ever been higher than this once before - July 2008 when crude oil was peaking at USD147/barrel. Hot and dry remains the call for the majority of the US Midwest, with only some scattered showers in forecast. Michael Cordonnier estimated the 2012 US soybean yield at 41.0bpa versus his previous estimate of 42.0bpa and the USDA's 43.9bpa. Private exporters announced the sale of 35,000 MT of old crop soybean oil to China. Enthused by these prices Celeres estimate that Brazilian farmers already have a third of their 2012/13 crop sold even though planting is 2 1/2 months away yet.
Corn: Jul 12 Corn closed at USD7.18 3/4, up 26 1/4 cents; Dec 12 Corn closed at USD6.74 1/2, up 18 3/4 cents. The weather market rumbles on, with corn hitting fresh highs for this latest move, posting the highest close for a front month since last September. Michael Cordonnier estimated the 2012 US corn yield at 150bpa versus his previous estimate of 156bpa and almost 10% below the USDA's 166bpa. Celeres estimated Brazil’s 2011/12 corn crop at a record 69 MMT versus their previous estimate of 66 MMT thanks to a bumper second crop. US markets are closed tomorrow for the Independence Day holiday, there will be no electronic market either. Depending on the latest weather developments and forecasts Thursday could be explosive. Thursday's normal weekly export reports will be delayed until Friday.
Wheat: Jul 12 CBOT Wheat closed at USD7.82 1/4, up 27 3/4 cents; Jul 12 KCBT Wheat closed at USD7.85, up 25 1/2 cents; Jul 12 MGEX Wheat closed at USD8.86, up 14 3/4 cents. Wheat followed corn and beans higher, with the Jul 12 Chicago contract closing at the highest levels for a front month in just over a year. US spring wheat ratings slipped to 71% good to excellent versus 77% a week ago, showing that even it isn't totally immune to US drought. Even so, 71% is still a very respectable amount. India announced that it will sell up to 2 MMT of state-owned reserves following back top back record harvests and bumper stocks. Ukraine’s Prime Minister said they have no plans on limiting grain exports in 2012/13. A senior Russian official made a similar statement last week. That's a bit like a vote of confidence for a Premier League manager weeks before his dismissal.
EU Wheat Posts Contract Highs
03/07/12 -- EU grains closed mostly sharply higher with soon to expire Jul 12 London wheat up GBP8.25/tonne to GBP198.25/tonne and Nov 12 GBP3.50/tonne higher at GBP178.00/tonne. Aug 12 Paris wheat fell EUR0.25/tonne to EUR234.00/tonne but Nov 12 was EUR4.00/tonne higher at EUR236.00/tonne.
Fresh contract highs were posted as the US drought continues and various analysts throw their hats into the ring with predictions on corn yields in the range of 150-155 bushels/acre, around 7-10% lower than where the USDA currently line-up. They will issue revised production estimates next week.
Outside markets were supportive with crude oil up more than USD3.00/barrel on Middle East tensions and a Norwegian strike that has cut back production. Iran’s parliament are said to have drafted up a bill to block the Strait of Hormuz to oil tankers heading to countries that support EU sanctions.
Ukraine’s Ag Ministry said that Ukraine exported 21.8 MMT of grains at the end of the 2011/12 marketing year, up 81% from a year ago. Of that total they exported 13.86 MMT of corn , 5.17 MMT of wheat , and 2.58 MMT of barley.
Russia's IKAR said yesterday that they had exported 27.8 MMT of grains in 2011/12, of which wheat accounted for 21 MMT. Neither country is expected to come anywhere near close to those totals in the season ahead after drought and winter kill look to have curtailed production sharply.
That should leave EU wheat well-placed to recapture some lost ground to important export homes in North Africa after a pretty disappointing 2011/12 season.
Talk that the ECB will lower interest rates on Thursday may see further euro depreciation, aiding export prospects further.
French crops are looking well, with FranceAgriMer last week pegging wheat good/excellent ratings at 73% compared to just 27% at the same time a year ago. Corn is rated 73% good/excellent from 64% this time in 2011.
Yield prospects in the UK are also looking highly promising, all we need now is some sunshine to ripen up the barley and dry things up and the combines can get rolling. Unfortunately there isn't much of a prolonged dry spell in the forecast.
The Morning Rant
03/07/12 -- London and Paris wheat have hit fresh contract highs this morning, following the lead of US grains. The IGC yesterday cut their US corn crop estimate to 350 MMT - strangely the exact amount that I calculated yesterday using the USDA's newest harvested area forecast along with Informa's revised yield estimate. As mentioned yesterday 350 MMT would still be an 11% increase on last year's production and an all time record.
It may be considered slightly strange then that the market is through the roof against a backdrop of what is currently still set to be a record US corn crop by some considerable distance.
Of course, given the current weather forecast, there is an distinct possibility that US corn yields will come in lower than Informa's 154.9bpa. However, using the USDA's forecast harvested area of 88.9 million acres we'd need to see final yields at 147bpa before US corn production isn't a record this year.
"But China may need to import 8 MMT of corn this year," many would point out. So what? If so (and DDGS imports may curtail some of this demand), at least half of that could easily come from South America. And what is 8 MMT of corn in the overall scheme of things? Less than 1% of the world's output, that's what.
Meanwhile the Chinese are currently importing almost that volume of soybeans per month - nearly 7 MMT in June, according to the Ag Ministry. If the market warrants getting excited about anything it's soybeans not corn - at least this side of South America's 2012/13 crop.
Talking of which, output there could be a monster in the spring of 2013. Big prices do after all encourage big plantings. Safras e Mercado yesterday estimated Brazil's 2012/13 soybean crop at 79.4 MMT, some 21% up on this year. Corn production will come in at 71.95 MMT next year, an increase of 7% on this season's record crop.
Similar large increases in output are also expected from Argentina, assuming of course that weather condition return to normal. That's a fairly big "if" some would say. It's also a fairly big "if" that weather conditions in South America won't be normal however. Indeed, it could be that weather conditions are better than normal, there's just as equal a chance.
The Australia Bureau of Meteorology today said that climate indications point towards a shift towards an El Nino climate event in the coming months. Typically that means abundant rainfall for South America, Argentina in particular.
Chicago Market Presses On Higher
02/07/12 -- Soycomplex: Jul 12 Soybeans closed at USD15.32 1/4, up 19 1/2 cents; Nov 12 Soybeans closed at USD14.38, up 10 1/4 cents; Jul 12 Soybean Meal closed at USD442.50, up USD6.50; Jul 12 Soybean Oil closed at 52.18, down 3 points. Funds were said to have been net buyers of 6,000 soybean and 2,000 soymeal contracts on the day whilst selling 4,000 oil. There were rains over the weekend in Iowa, northern Illinois, Indiana and Ohio - generally 3/4 inch but up to 1 1/4 inches in places - but a large portion of the corn belt south of those areas missed out entirely. With daytime temperatures in the 90's and low 100's evaporation will have also been high. The weather forecast for the week ahead offers more of the same, scattered rains and hit temperatures. The USDA announced the sale of 1.19 MMT of new crop soybeans to unknown, presumably China, and clearly not put off by prices over USD15/bu. The USDA pegged the crop at 45% good/excellent, a drop of eight percentage points from last week and double the cut that was expected.
Corn: Jul 12 Corn closed at USD6.92 1/2, up 20 cents; Dec 12 Corn closed at USD6.55 3/4, up 21 cents. Funds were said to have been strong buyers again, booking an estimated 17,000 contracts on the day. The USDA announced the sale of 110,500 MT of US new crop corn to Mexico. Cropcast reduced its estimate for US corn yields to 150.6 bu/acre - some 9% below the current USDA prediction. The IGC raised its world corn production estimate by 4 MMT from last month to a record 917 MMT, estimating the US crop at 350 MMT, which is almost 26 MMT below the USDA's forecast. Despite the reduction in the US corn production prospects have improved sufficiently elsewhere around the globe, in places like China and India, to more than compensate for this, they said. The USDA also cut corn good/excellent ratings by eight percentage points to 48%. Ukraine's state weather forecaster estimated the 2012 corn crop at 22 MMT versus 22.7 MMT in 2011.
Wheat: Jul 12 CBOT Wheat closed at USD7.54 1/2, up 15 1/2 cents; Jul 12 KCBT Wheat closed at USD7.59 1/2, up 21 cents; Jul 12 MGEX Wheat closed at USD8.71 1/4, up 7 1/4 cents. The IGC estimated the 2012/13 global wheat crop at 665 MMT versus their previous estimate of 671 MMT and the USDA's 672 MMT. Russian production was cut 6 MMT to 49 MMT, some 4 MMT lower than the USDA although in line with other local estimates. Local analysis group IKAR said that Russia finished up exporting 27.8 MMT of grain in 2011/12. Many private estimates now suggest that that figure could halve in 2012/13. The USDA cut spring wheat crop ratings from 77% good/excellent to 71%, still a pretty high percentage. They said that 73% of the spring wheat crop is heading, the five year average is only 35%, so maturity is well advanced. The winter wheat harvest is now pegged at 69% done versus 59% last week and 43% for the 5 year average.
EU Wheat Posts Contract Highs
02/07/12 -- EU grains finished higher with Jul 12 London wheat up GBP2.00/tonne lower to GBP190.00/tonne, and new crop Nov 12 GBP3.50/tonne higher to close at GBP174.50/tonne. Aug 12 Paris wheat rose EUR5.25/tonne to EUR234.25/tonne, whilst Nov 12 was also EUR5.25/tonne firmer at EUR232.00/tonne.
Both London and Paris new crop Nov 12 wheat took out the previous contract highs, encouraged by US corn surging to 9 1/2 month highs on continued Midwest drought, dragging US wheat with it.
Despite rising wheat prices Jordan issued a tender overnight to buy 100,000 MT of wheat following business done with Tunisia and the Middle East last week.
The IGC cut their June 2012/13 world wheat production forecast by 6 MMT from last month to 665 MMT. That represents a 30 MMT, or 4.3% drop, on last year's record output.
Russian wheat production was cut 6 MMT to 49 MMT, with Ukraine's down 1 MMT to 13 MMT. Even so, this only brings the Russian number into line with other estimates from the likes of local analysts IKAR and SovEcon. The Ukraine forecast is the same as the USDA said last month.
The IGC raised their world corn production estimate 4 MMT to a record 917 MMT, despite US weather woes. The US crop was pegged at 350 MMT, which despite all the media doom and gloom still represents an increase of 36 MMT on last season, or over 11%.
Closer to home, Coceral put some flesh on the bones of their European production estimates leaked Friday. EU-27 all wheat production is seen almost 1.5 MMT lower than their March estimate at 133.14 MMT, 3% down on last year.
Whilst output in the UK (15.73 MMT), France (37.25 MMT) and Germany (22.72 MMT) were all increased from their earlier forecasts that was counteracted by reductions in particular for Spain, Poland, Hungary and Romania.
EU-27 barley production was also cut by 1.5 MMT from March to 52.57 MMT (1.7% higher than last year), whilst corn output was raised 3.6 MMT to 65.73 MMT (1.5% up on last year). The UK barley crop was pegged at 5.62 MMT.
The EU-27 rapeseed crop was cut 850 TMT to 18.28 MMT (4% down on 2011), with the UK crop estimated at 2.67 MMT, France's at 5.22 MMT and Germany's at 4.87 MMT.
Even closer to home than that, the MetOffice said today that June was the wettest since records began in 1910. It was also the second dullest June on record with just 119.2 hours of sunshine, along with being the coolest June since 1991.
EU Rapemeal Prices
02/07/12 -- Rapemeal prices on the continent are steady, mirroring further soymeal increases in Chicago on Friday night and again this morning.
Latest guide prices for EU rapemeal today, basis FOB Lower Rhine in euros/metric tonne, with change from previous trading session:
| Jul12 | 276.00 |
+4.00 |
| Aug12 | 264.00 |
+1.00 |
| Sep/Oct12 | 260.00 |
+3.00 |
| Nov12/Jan13 | 252.00 |
+2.00 |
| Feb/Apr13 | 250.00 |
+4.00 |
| May/Jul13 | 227.00 |
+2.00 |
| Aug/Oct13 | 198.00 |
+5.00 |
| Nov13/Jan14 | 203.00 |
+3.00 |
The European Titanic Has Already Hit The Iceberg
02/07/12 -- My thanks to David Baker for flagging this one up. A nice rant from UKIP leader, and MEP for the South East Counties, Nigel Farage following the recently announced Spanish bank bailout deal that the EU leaders put some more flesh on the bones of (and subsequently reassured the market with) on Friday:
The Morning Paper
02/07/12 -- The electronic grains have started July where they left off June, in positive territory.
What a turnaround month June was. Jul 12 CBOT corn finished May at a 17-month low of USD5.55 after falling 13.5% on the month. For June it reversed those losses and then some, rising 21% to close the month at USD6.72 1/2.
For the record Jul 12 CBOT Soybeans gained 13% in the month of June whilst Jul 12 CBOT wheat added almost 15%.
Jul 12 London wheat posted a slightly more modest near 10% gain, with Nov 12 adding a similar amount and Nov 12 Paris wheat rising 7%.
So, where do we go from here? The trade is currently almost universally bullish, tensions have eased considerably regarding the main thing that has been hanging over it like the Sword of Damocles - the European debt crisis - following last week's summit and subsequent announcement of an apparent easing in bailout criteria.
We are back to trading the US weather, and keeping an eye on yields out of the Black Sea where a Reuters survey last week pegged wheat output from Russia, Ukraine and Kazakhstan 22% lower this year at 78.9 MMT.
Following Friday's USDA report, besides the weather, the trade will now be focused on next Wednesday's WASDE report and wondering what the USDA is going to say about US yield prospects.
On Friday the usually bullish Informa Economics estimated the 2012 US corn yield at 154.9bpa, down 5% from their previous estimate of 163.4bpa. Using Friday's USDA estimated harvested (not planted) area of 88.9 million acres that gives us a US crop of 13.77 billion bushels in 2012, or just under 350 MMT which is almost 26 MMT under the current USDA estimate.
As shocking as that may sound, that still represents an increase of 36 MMT on last season, or over 11%. The USDA will doubtless be currently working on tweaks to domestic demand (possibly lowering consumption from the ethanol sector?) and maybe reduced corn US exports due to increased competition from South America and the Black Sea in order not to cut US 2012/13 ending stocks too much. Having just got the chance to increase them to more comfortable levels, they will not want to go cutting them too sharply at this early stage in the season, that's my guess.
For soybeans, the USDA are now predicting a harvested area of 75.3 million acres. Using Informa's new yield estimate of 42.7bpa, that would give us a US crop of 3.215 billion bushels in 2012. That's 87.5 MMT in English money, which is actually slightly higher than the USDA's current estimate of 87.2 MMT amazing as it may seem.
Maybe there's some potential then for a bearish surprise in soybeans next week's report?
Before we get there though, short-term direction may be governed by this afternoon's revised weather forecasts and this evening's crop ratings. Neither of those are likely to be bearish. Last week the USDA cut corn good/excellent by six percentage points to 57% - a larger drop than the trade was anticipating. They also cut soybeans good/excellent by three percentage points to 53%.
I think that tonight we may see a further 3-4 points taken off corn and maybe 2-3 off soybeans.
