Nogger's Blog

04/12/13 -- The overnight Globex market trades with corn a couple of cents weaker, wheat up 1-2 cents and beans 3-6 cents firmer. Chinese rejections of US corn is the big story, although at only a couple of cents lower the market currently seems relatively relaxed about the issue at the moment. More relaxed than I'd be if I was a shipper with a boat load of US corn on the way to China.

A report on Reuters suggests that there's almost 2 MMT of US corn en-route to China right now. They've apparently rejected a total of around 180 TMT of US corn since they first found traces of the non-approved MIR 162 variety in shipments from the US last month.

At the very least this is going to cause delays in unloading US corn consignments as they are held up pending customs clearance. The issue would appear to provide Ukraine, Brazil and Argentina with a window of opportunity - not that the latter appears to have much corn left to sell ahead of new crop.

It might also provide an opportunity for someone like South Korea if they can take in a couple of corn boats at short notice.

It's not the sort of news that the US corn market needs, not on the back of a record 14 billion bushel harvest. The bulls/US corn growers will be hoping that the fact that ethanol production margins in the US are very robust will underpin prices. The US Energy Dept will probably report another big week for ethanol production, and therefore corn usage, later this afternoon.

I suspect that the reason that we aren't seeing corn slumping to fresh lows on this latest Chinese news is that we are now heading into year end, and fund money is sitting on a very large short position in CBOT corn. Hence some significant fund buying is likely to take place during the month of December, maybe even it's already started, as they bank some profits and square off a few positions.

In other news, soybean growers in Parana state have just about got all their soybeans for the 2013/14 harvest planted, and 98% of the crop is said to be in good condition with 11% of the crop already flowering, according to Dr Michael Cordonnier.

Despite that, growers only have 20% of their anticipated 2013/14 soybean crop forward sold versus 35% a year ago.

New crop prices being not as good as they were last year, and at a substantial discount to old crop values, would appear to be the reason for that. Even so, current new crop prices are in excess of the equivalent of $13/bu, which is still pretty reasonable.

The situation is mirrored in Mato Grosso where farmers are 44% sold versus 64% this time last year. On a national level Safras e Mercado say that 33% of the 2013/14 Brazilian soybean crop is sold versus 48% a year ago - and that is only up one percentage point in a month.

To me this suggests that the potentially huge Brazilian crop on the way could be met with a large wave of spot selling once the harvest is underway. Brazilian growers infamously don't have a lot of "stick it in the store and wait for a better day" options open to them.

That could put the market under pressure in early the new year. "Remind me again, when do we often see a dip in the soya market, Nogger?" I hear you ask. Erm, that would be February based on historical data going back 30 years.

Here's a little chart I created last week for somebody, showing the highs and lows in Chicago soymeal across the last four years: CBOT Meal 2010-13

Of course it can't be as easy as that every year, that would just be like going into the bookies and knowing that your horse was already in the winners enclosure before you put your bet on. Where's the fun in that? I want a bit of a run for my money. "And as they enter the final straight its Don't Tell The Missus from That Git Piggot followed by I Bleedin Knew It and half a length back to Come On You Beauty...."

So you will note immediately of course that Feb 2011 was entirely the wrong time to be buying soymeal, but that was the year that a severe drought cut production in Brazil and Argentina very sharply. In the other 3 years putting your name on some meal sometime in the Jan/Mar period would have been a very smart move. And I'd settle for backing three winners in four.

On the basis that as things stand it looks like another bumper year for South American soybean production early in 2014, and that Brazilian growers could be fire-sale sellers at harvest time, I'd be currently thinking about rummaging under the stairs for them old boots and a shovel across the Christmas shut-down, in readiness for an opportunity early in 2014.

Another factor to consider is that by Apirl/May, and possibly even March, we will almost certainly be starting to see logistical problems manifest themselves in Brazil. This has to be especially likely with a potentially record 88-90 MMT crop, given all the problems that they had earlier this year and that availability from the US will be much tighter by then.

Also don't forget that a major fire at the Brazilian port of Santos on Oct. 18 wiped out one of the world's largest sugar terminals. The sugar that would of been exported from here is now being handled by various facilities, potentially piling further pressure on the ones that also handle the shipment of grains. Brazil's 2013/14 sugar cane crop is forecast at record levels too.

Disclaimer: What happened in the past has no relation whatsoever to what is going to happen in the future. That's what me old mate Confucius told me. When I asked him if I was doing the right thing by marrying MrsN#2.