The Morning Vibe

06/10/14 -- It's a big week for the grain markets this week. Will the USDA deliver the market one last final kick in the nuts, or are the seasonal lows now in?

The overnight grains and early trade in Europe is all in green. Nearby Nov 14 London wheat is in danger of getting nosebleed at the lofty heights of GBP115/tonne as I write! What it's doing up there I'm not really sure. I can buy into the notion that quality milling wheat could/should move higher, with Russia seemingly out of the market already (despite a large crop of their own).

Indeed the fact that they have been comfortably out-priced in recent Egyptian tenders does make you wonder "are the Russian crops really as big as the Ministry are saying?" OK, domestic demand is expected to be up this year due to increased livestock feeding, but whilst SovEcon have that 4 MMT higher, production of 104 MMT (if it really is there) is now almost 13 MMT higher than last season's crop.

If the Russian's are deliberately inflating their 2014 grain production estimates higher than the reality, in a two-fingered gesture to the West, then the Ukraine Ministry also appear to be playing the same game. They reckon that Ukraine will produce 30 MMT of corn this year, almost reaching the record levels of last year, yet the harvest results to date suggest that something in the region of 22 MMT might be nearer the mark.

Certainly some crops in Donetsk and Lugansk look like going unharvested this year, and anecdotal reports from elsewhere suggest that yields are significantly lower this year.

Parts of the Upper Midwest and Northern Plains apparently got a touch frost over the weekend. Other areas got rain, potentially delaying harvest activity further in those regions. Both of those factors, along with some book-squaring ahead of Friday could be behind this morning's strength there.

Benson Quinn said on Friday that they expect the US 2014 corn harvest to be 25-30% done in tonight's USDA crop progress report, with soybeans 22-27% done. Both estimates look on the high side to me. Huge crops look assured, but they're not quite in the barn yet - which is probably a good thing as the barn isn't big enough.

Last week's US weekly export sales total of 741 TMT for wheat was the best in two months, and came despite the very strong US dollar. That supports the idea that demand for quality wheat is good. So too does the fact that EU soft wheat export licences are running at almost the same level as a year ago. Cumulative US wheat sales are now at 56% of the USDA's target for the 2014/15 season versus the 5-year average of 53% at this time.

That still doesn't explain the strength in London feed what these past few days, currently up almost 7% compared to last Tuesday. Selling opportunity, or the start of the mother and father of all recoveries? Well, here's the way I see it.....oh bugger my internet connection has gone down....