Chicago Closing Comments - Friday
Corn: Sep 12 Corn closed at USD7.98 1/2, up 17 1/4 cents; Dec 12 Corn closed at USD7.93 1/4, up 17 cents. For the week overall Sep 12 was 26 cents lower and Dec 12 fell 2 1/2 cents. It's been a volatile week, with strong signs of rationing at these levels courtesy of yesterday's negative weekly export sales for both old and new crop years for the first time in more than 20 years. Production however could still come in considerably worse than the USDA's existing 146 bushels/acre suggests. Informa Economics, a group normally associated with conservative estimates, today forecast 2012 US corn yields at 134bpa, and the often more aggressive Lanworth Inc came in with one of the lowest yet at just 122bpa. The former suggests a crop of 11.9 billion bushels and the latter just 10.839 billion, using the USDA's 2012 harvested area forecast. If things are as bad as that of course then the USDA's harvested area estimate is also almost certainly too high as abandonment/silaging levels will be higher than the USDA currently predict.
Wheat: Sep 12 CBOT Wheat closed at USD8.98, up 14 cents; Sep 12 KCBT Wheat closed at USD9.06, up 16 cents; Sep 12 MGEX Wheat closed at USD9.72, up 4 1/4 cents. For the week Chicago wheat was 45 1/4 cents lower, with Kansas wheat down 35 cents easier and Minneapolis down 59 1/2 cents. The Russian Weather Centre cut their forecast for the 2012 grain harvest there from 83-86 MMT to 77-80 MMT. The IGC cut their Russian wheat export forecast by 3 MMT to 9 MMT and also reduced Kazakhstan's export potential by 2.5 MMT to 7 MMT. The USDA currently see Russia exporting 12 MMT of wheat in 2012/13, although they agree with the IGC's estimate for Kazakhstan. In addition the USDA have Ukraine's wheat exports 0.5 MMT higher than the IGC at 4.0 MMT. The Ukraine Agribusiness Club now place wheat exports there at only 2.5 MMT. The IGC also estimated the 2012 US all wheat crop at 60.5 MMT, up 11% on last year, with the Canadian crop coming in at 26.5 MMT, which is 5% more than a year ago.
EU Wheat Mixed On Conflicting Factors
For the week as a whole that puts Nov12 London wheat GBP6.80/tonne lower and Nov12 Paris wheat EUR11.75/tonne easier.
It's been another volatile week, with some rain falling and calls for possibly a cooler and wetter outlook for the US combined with more Eurozone meltdown fears the winners overall.
There's plenty for the bulls too though, with Black Sea production (and export) estimates shrinking and some seemingly outrageously low yield estimates coming into the market late Friday from Lanworth Inc, the US firm who employ a combination of satellite imagery and on the ground data to forecast yields.
The IGC cut their Russian 2012 wheat production estimate by 4 MMT from last month to 45 MMT, and some 20% down on last year. They cut Kazakh output by 3 MMT to 12.0 MMT, a drop of 47% from last season's record crop, and whilst leaving Ukraine production unchanged at 13.0 MMT that still represents a drop of 42% on last year.
For the record EU-27 wheat production was pegged at 132.0 MMT, down 4% on last year, with the UK at 15.4 MMT (up marginally on 2011), France at 38.0 MMT (+5%) and Germany at 22.7 MMT (-1%).
The EU corn crop was estimated at 65.7 MMT, up 0.5 MMT on last year and the EU barley crop at 52.6 MMT, up 0.9 MMT on last year. The UK barley crop was forecast unchanged on 2011 at 5.5 MMT, with both the French and German crops rebounding sharply from last season's drought-hit output at 11.0 MMT (+24%) and 9.8 MMT (+11%) respectively.
The IGC also cut their 2012/13 Russian wheat export forecast to 9 MMT versus an estimate of 12 MMT last month and 22 MMT in 2011/12. Kazakhstan is now seen exporting 7 MMT of wheat, compared to 9.5 MMT forecast last month and 10.2 MMT in 2011/12. Ukraine's export estimate was left unchanged at 3.5 MMT, but down from 5.3 MMT in 2011/12.
In light these Black Sea reductions the EU-27 will export 17.6 MMT of wheat in 2012/13, 1.3 MMT more than estimated last month and up a similar amount on 2011/12, they said. America's share of the world wheat export market will also rise to 33 MMT, versus the 32 MMT forecast last month and 27.7 MMT in 2011/12.
The balance of world wheat trade in the season ahead is therefore seems destined to switch back into the hands of Europe and the US and away from the normally less price-discerning Black Sea sellers. Sounds pretty bullish doesn't it?
Before we all get too carried away though, how much of this is already priced into the market? Also consider that with prices where they are every region around the world is seen importing less wheat in 2012/13 than in 2011/12. Total world wheat imports are forecast at 132.6 MMT - which is 12 MMT, or 8%, down on 2011/12.
Chicago Closes Lower, Signs Of Corn Demand Destruction
26/07/12 -- Soycomplex: Aug 12 Soybeans closed at USD16.55 3/4, down 38 1/2 cents; Nov 12 Soybeans closed at USD15.67 1/2, down 48 cents; Aug 12 Soybean Meal closed at USD518.80, down USD11.00; Aug 12 Soybean Oil closed at 51.68, down 56 points. Overnight showers and some calls for a cooler and wetter outlook ahead encouraged more fund liquidation, selling an estimated 12,000 soybean contracts on the day. Combined weekly export sales beat expectations of 350-550 TMT at 710 TMT. The IGC cut their US soybean crop estimate by 8.3 MMT to 79 MMT, 4 MMT lower than the USDA's latest figure. However they did point out that: "World soybean production is expected to recover sharply in 2012/13, rising by some 9% year-on-year, although the forecast hinges on a strong rebound in output from South America where planting begins in the fourth quarter of 2012.
Corn: Sep 12 Corn closed at USD7.81 1/4, down 13 1/4 cents; Dec 12 Corn closed at USD7.76 1/4, down 11 3/4 cents. The USDA announced weekly export sales of -9,100 MT for old crop and –131,300 MT for new crop, the first time in more than 20 years that both old and new crop export sales have been negative. That obviously says something about demand at these price levels. Included in that was China selling back 240,000 MT of new crop purchases. The USDA attaché in Brazil says that corn exports there in both 2011/12 and 2012/13 will reach record highs. The IGC slashed their US corn production estimate this season by 50 MMT to 300 MMT versus the USDA's 329.5 MMT. World demand was however trimmed 32 MMT to 878 MMT versus the USDA's 900.5 MMT. The China Daily said that they imported 2.4 MMT of corn the first half of 2012, up 41% from last year, but not a stunning volume in the overall scheme of things. Fund selling was estimated at 10,000 contracts on the day.
Wheat: Sep 12 CBOT Wheat closed at USD8.84, down 19 1/4 cents; Sep 12 KCBT Wheat closed at USD8.90, down 14 cents; Sep 12 MGEX Wheat closed at USD9.67 3/4, down 21 1/4 cents. Wheat followed corn lower with funds selling an estimated 5,000 Chicago contracts on the day. Weekly export sales came in at 367,000 MT, a bit below trade expectations of 400-600 TMT. Indonesia rejected a cargo of Indian wheat on quality grounds, but then agreed to take it at an allowance. Jordan has reissued a tender for 100 TMT of optional origin wheat for Oct/Dec shipment having declined on the last two due to price. A spring wheat crop tour doing the round concluded with a 2012 yield estimate of 44.9 bpa compared with 41.5 bpa on last year's tour. Durum yields were pegged at 42.4 bpa against just 31.8 bpa a year ago. Russia’s Prime Minister will apparently hold a meeting on August 8th to discuss the grain market - almost two years to the day after the infamous 2010 export ban was introduced.
US Rain Takes Shine Off Early EU Grain Advances
26/07/12 -- EU grains finished mixed with Nov 12 London wheat up GBP0.70/tonne to GBP187.95/tonne and Nov 12 Paris wheat down EUR4.50/tonne at EUR256.00/tonne.
Grains were posting decent gains for most of the day, but worked lower late on as US markets extended this week's declines on news of overnight rain and a cooler, wetter outlook to come.
Early strength was linked to news that ECB President Mario Draghi made a high profile statement saying that he would do whatever it takes to protect the Eurozone from collapse.
A lesser publicised comment came from Citi Group's chief economist who said that there is a 90% probability that Greece will leave the Eurozone.
The IGC cut their forecast for world corn production in 2012/13 by 53 MMT to 864 MMT, largely thanks to a 50 MMT hit to the US crop to 300 MMT. Those estimates are 41 MMT and 30 MMT below the latest USDA estimates, which is a little unusual for the IGC.
They did also however cut world consumption by 32 MMT, taking ending stocks down 22 MMT to 115 MMT - the lowest since 2006/07.
There were only minor tweaks to the balance sheet for wheat, with global production unchanged from last month at 665 MMT. Despite the slash to global corn supplies world wheat consumption was actually reduced by 3 MMT and ending stocks increased 1 MMT. All three are within spitting distance of the existing USDA projections.
The Russian Ministry said that grain yields this year are 34% down on last season, a big drop but one that is only in line with information already in the market.
Of more interest may be the news from Russia’s Grain Union that their Prime Minister will hold a meeting on August 8th to discuss the grain markets. They went on though to say that there should be no need to limit exports in 2012/13 and forecast them at 15-20 MMT, versus 27 MMT in 2011/12.
If The GFS Model Was A Car Would You Buy It?
Checking out the new kid weather website on the block, the excellent WorldAgWeather, this afternoon I thought I'd take a quick shuftie at what the Trabant equivalent of the weather world has to say today.
You might not be surprised to hear that, whilst not exactly saying it's going to piss it down for the entire Midwest across the next 15 days, our old GFS mate is calling for heavier than normal rains for just about all points from Illinois south and west. Farmers in South Dakota should get their umbrellas out too.
Blimey! Sell, sell, sell. At least for those living in caves.
The rest of you might just think to yourselves, erm I'll just take a teeny weeny peak at the forecast from the Canadian Meteorological Centre, just for a bit of confirmation like. The difference between the two is pretty startling. You can click on the image above right to enlarge it, although I suspect that only Mr Magoo will need to in order to figure out which is from the GFS Model.
Weather forecasting isn't an exact science, I can appreciate that, but how can the GFS Model have been so consistently wrong all summer and be making such dramatically different forecasts to most of the other popular models? Answers on a postcard addressed to: The GFS Model, I'll Have You You Bastard Boulevarde, Skintville, Illinois.
As a side issue, I'm suggesting that the GFS Model is herewith renamed the CFHS Model. I'll give you a clue, although you may not require one, the C stands for "Complete" and the H for "Heap of".
Chicago Stages A Turnaround Wednesday
25/07/12 -- Soycomplex: Aug 12 Soybeans closed at USD16.94 1/4, up 45 cents; Nov 12 Soybeans closed at USD16.15 1/2, up 46 cents; Aug 12 Soybean Meal closed at USD529.80, up USD20.00; Aug 12 Soybean Oil closed at 52.24, up 66 points. The sell off of the last couple of days extended into early trade, but the market quickly turned around to close sharply higher in the end. Extremely choppy trade looks set to continue depending on whatever the daily weather forecasts throw up. The GFS weather model continues to forecast heavier rains than other sources, but consistently keeps failing to deliver. Funds were said to have been net buyers of around 12,000 soybean contracts at the end of the session. Estimates for tomorrow's weekly export sales report are 350-550 TMT.
Corn: Sep 12 Corn closed at USD7.94 1/2, up 4 1/2 cents; Dec 12 Corn closed at USD7.88, up 9 3/4 cents. Weekly ethanol production was reported as 796,000 barrels per day, down 1% on last week and 9% lower than a year ago, so these prices are choking off some demand. Estimates for tomorrow's weekly export sales report are also seen at a pretty low 250-350 TMT. Production estimates for 2012/13 are literally all over the place though. Think of a number, divide it by three and take away the first number you thought of sort of a thing. We all know it's going to be low, but how low? Crop tours currently going the rounds in Indiana and Illinois were reporting some pretty shocking yields. Whilst old crop availability remains tight and huge uncertainty surrounding new crop, farmer selling is understandably at a standstill. Rumours of feed manufacturers importing Brazilian corn have been confirmed. The Brazilian attaché to the USDA raised their 2011/12 corn crop estimate there to 71 MMT.
Wheat: Sep 12 CBOT Wheat closed at USD9.03 1/4, up 24 1/2 cents; Sep 12 KCBT Wheat closed at USD9.04, up 23 1/2 cents; Sep 12 MGEX Wheat closed at USD9.89, up 21 cents. Unlike corn, an ongoing spring wheat crop tour is reporting potentially very good yields. US wheat missed out on an Iraqi tender, although it is on Morocco's shopping list, whilst Libya is in for 50,000 MT of optional origin wheat. Fund buying was placed at 6,000 contracts on the day in the case of Chicago wheat. Rumours that some form of Russian restrictions on wheat sales aren't too far away are supportive, as too of course is spillover support from this year's unfolding corn story. Outside markets, and European debt woes in particular, offer the greatest downside threat. The strength of the dollar won't help either, so it will be interesting to see how close trade estimates for tomorrow's weekly export sales report of 400-600 TMT turn out to be.
EU Grains Regain Some Mojo Wednesday
25/07/12 -- EU grains finished sharply higher with Nov 12 London wheat up GBP6.95/tonne to GBP187.25/tonne and Nov 12 Paris wheat EUR9.50/tonne firmer at EUR260.50/tonne.
The grains did a pretty good job of reversing most of Tuesday's steep losses in a market that is becoming increasingly volatile.
Tensions were a little less fraught, with concerns over Europe calming somewhat, although it's clear that they could easily flare up again at a moment's notice.
Despite what is clearly going to be a significantly lower wheat crop in the region this year, offers of Black Sea wheat are still around, and competitive. Iraq bought 150,000 MT of Russian wheat in a tender it was revealed.
It would seem likely though that Black Sea offers will quickly dry up after an initial post-harvest selling spree. Talk of a Russian export embargo at some point in the not too distant future of the 2012/13 season abound, although it may be more likely for now that they may introduce export tariffs instead and see what good that might do to restrict foreign sales.
The euro was up off the lows of Tuesday today, although not by much and a sustained period of euro strength looks to be extremely unlikely for the foreseeable future. That could underpin cereal prices in Europe going forward, especially if matched by continued dollar strength.
That said, the not impossible chance of a complete Eurozone meltdown is probably still the most significant factor that could bring this market down yet. It should also be noted that there is a strong historical trend for Chicago corn and soybean prices to top out in July, the classic month to be at the height of a US weather market, although US weather markets this extreme don't come around too often.
Chicago Closing Comments
24/07/12 -- Soycomplex: Soybeans recovered from limit down losses at one stage to finish around 50 cents easier, with meal down USD14-15 and oil losing more than 200 points. Heavy fund selling, estimated at around 18,000 contracts in beans, was prompted by a wetter weather forecast and a slump in outside markets as Europe's debt problems look like taking several steps for the worse. The wetter forecast, should it prove to come to fruition where many before have disappointed this year, could still potentially bring the US soybean crop back from the dead. Although the crop is more mature than normal, having been planted early, almost two thirds is still to set pods. This is the period when rainfall matters the most.
Corn: Forward months only posted losses of around 4-5 cents on corn, where the feeling is that much of the damage is irreversible. Funds sold an estimated 12,000 corn contracts on the day, making them net sellers of around 20-25,000 lots over the last two sessions. Even so they are still heavily long. Reports suggest that Brazilian corn is now being shipped into the US. There is also some talk of significantly lower demand from the feed sector with corn prices around USD8/bu and of livestock being finished off at lower weights to partially compensate for prices at or near record highs. A Reuters survey reports corn yields now being estimated not much above 130bpa on a national level compared to the USDA's 146bpa that surprised the trade only a couple of weeks ago.
Wheat: Wheat finished the day with losses of around 30-35 cents across each of the three exchanges, with funds estimated to have been net sellers of some 8,000 contracts in Chicago. Harvesting in the EU is now moving on at a pace with some dry and fine weather for most. The US winter wheat harvest is 82% complete and the spring wheat harvest 12% done already, a testament to the dry weather. Yields for the latter look similar to last year. The sharply lower US corn crop will undoubtedly lead to increased wheat usage in the feed ration this year, but with wheat prices still a dollar a bushel more than corn the switch may not be as large as some might think. Meanwhile, the firm dollar and weak euro could dent US wheat exports too.
EU Wheat Crashes On Euro Woes
24/07/12 -- EU grains closed sharply lower as European debt woes raged with Nov 12 London wheat crashing GBP10.20/tonne to GBP180.30/tonne and Nov 12 Paris wheat slumping EUR14.25/tonne to EUR251.00/tonne.
The bad news for Europe is now coming thick and fast from all angles, with Spain looking like the recently agreed banking sector bailout was just the tip of a very large iceberg.
A full blown Spanish bailout would be the largest drain yet on what is starting to look like a woefully inadequate stability fund. And then there's Italy...
Meanwhile it's looking like Greece hasn't been able to comply with all the criteria to qualify for it's next trance of bailout funding so some further debt restructuring there is going to be necessary to avoid a default.
Yields on Spanish 10-year bonds rose to 7.6% and the Italian stock market crashed to a euro era low yesterday.
The grain market crashed as spec money scrambled for the exits as things went into a full on risk-off mode.
The US weather outlook is a little brighter. "A strong storm tracking through southern Canada will challenge a dome of high pressure currently causing heat-wave conditions in the US heartland. Rainfall is expected to be heavy in the Northern Midwest, but the jury is still out on how much rain would develop in the “heart” of the corn belt. Nebraska, Iowa , Missouri and Illinois may miss out on heavy, soaking rains, though scattered showers are still indicated with variable amounts from .25 to 1.25 inch," say Martell Crop Projections.
With the US winter wheat harvest winding down, attention is now starting to switch to spring wheat. Although crop conditions for that have also been declining lately prospects still look pretty favourable, and far better than for corn.
"North Dakota saw wheat conditions decline for the 4th straight week on Monday to a season low 68% good-excellent. Poor rated wheat remained steady near 5%. Nine percent of the harvest was already complete, the second earliest on record.
"Hot temperatures have taken a toll on wheat conditions, no doubt, shrinking the yield causing premature ripening. Light-weight kernels may be revealed at the grain elevator since extreme heat coincided with the grain filling stage. This may still be a good harvest from favourable spring growing conditions. The USDA pegged the hard red spring wheat harvest at 435 million bushels in the July report and nearly 10% higher than last year’s 398 million bushel crop," Martell Crop Projections add.
Chicago Closing Comments - Monday
23/07/12 -- Soybeans: Aug 12 Soybeans closed at USD16.98 1/2, down 59 cents; Nov 12 Soybeans closed at USD16.22 1/4, down 64 cents; Aug 12 Soybean Meal closed at USD523.00, down USD20.00; Aug 12 Soybean Oil closed at 53.75, down 61 points. An improved weather outlook may give this year's soybean crop a chance after all was the feeling today. Profit-taking was also a factored, encouraged by falling outside markets, with funds exiting an estimated 13,000 of their soybean longs on the day. "A powerful dome of high pressure responsible for Midwest heat and drought will come under attack from a Canadian storm, opening the door for heavy rainfall this week," say Martell Crop Projections. The USDA cut soybean good/excellent crop ratings by three points to 31%, which may have been a smaller reduction than some were expecting.
Corn: Sep 12 Corn closed at USD8.14, down 10 1/2 cents; Dec 12 Corn closed at USD7.85 1/2, down 10 1/4 cents. The decline in corn wasn't as pronounced as for soybeans given the general feel that the damage has largely already been done for corn. The USDA cut good/excellent five points to 26%, which was in line with trade expectations. Outside markets offered no support, and funds were estimated to have been net sellers of around 11,000 corn contracts on the day. China's CNGOIC indicated that they may import 2 MMT less corn than originally expected at current price levels. The Climate Prediction Centre's 6-10 day forecast for July 28 - August 1 calls for average to above-normal rainfall in the Midwest. "A solid inch of rainfall, but up to 2.5 inches, is predicted on 75-80% of US corn and soybean farms. Normal weekly rainfall is around one inch," say Martell Crop Projections.
Wheat: Sep 12 CBOT Wheat closed at USD9.12 3/4, down 30 1/2 cents; Sep 12 KCBT Wheat closed at USD9.14, down 27 cents. Sep 12 MGEX Wheat closed at USD10.05 1/2, down 26 cents. Fund selling in Chicago wheat was estimated at around 5,000 contracts on the day. The US winter wheat harvest is 82% complete, and spring wheat cutting is 12% done compared to zero normally. Spring wheat good/excellent declined five points to 60%. Jordan bought 100,000 MT of Black Sea wheat, suggesting that US and EU values are maybe a bit overdone. The prospect of an escalation of Europe's debt problems weighed on stocks as well as commodities. US wheat inspections for export were 316.9 thousand MT - around half of year ago levels.
EU Debt Woes Usurp US Drought Concerns
23/07/12 -- EU grains finished mostly lower with Nov 12 London wheat down GBP4.00/tonne to GBP190.50/tonne and Nov 12 Paris wheat down EUR4.50/tonne at EUR265.25/tonne.
A worsening outlook over European debt managed to usurp what some are now calling the worst US drought in a generation.
Weekend media reports suggest that some Spanish provinces will need a bailout within days, and even Germany was warned by Moody's that it's AAA credit rating was under threat.
Spanish borrowing costs are now well above the 7% level, widely considered to be unsustainable, and the stock market regulator there was forced to introduce a ban on short selling after the recent slump in share prices.
Italian borrowing costs are also up as some of the larger European ships are listing badly, if not yet sinking.
Risk aversion is back on the agenda big time, drought or no drought, it would seem, and after the run up that we've had in the grain markets then it's only to be expected that we will see periods of consolidation like this. Particularly with a harvest underway.
Some early rapeseed was cut in the south east of the UK over the weekend I hear.
The French harvest is well advanced and progressing north, with yields said to be good. The weak euro should be an aid to their export prospects.
