EU Grains Closing Comments
26/06/12 -- EU grains closed mixed with Jul 12 London wheat up GBP2.00/tonne to GBP190.00/tonne and Nov 12 GBP0.20/tonne lower at GBP167.80/tonne. Aug 12 Paris wheat closed EUR6.50/tonne firmer at EUR226.50/tonne, whilst Nov 12 was EUR1.00/tonne higher at EUR226.00/tonne.
Jul 12 London wheat posted another fresh high in more than a year as old crop remains tight and new crop availability looks further away than was anticipated a month or two back. Open interest is pretty thin in the contract, but it's the longs who are holding the aces it would seem.
Hot and dry conditions in the US are the main market driver at the moment, although with the winter wheat harvest past halfway and spring wheat largely escaping the worst of the weather at 77% good/excellent last night this is much more of a corn and soybean problem than a wheat one. Nevertheless wheat is more than happy to go along for the ride.
The EU Commission research unit MARS say that EU-27 wheat yields will be very similar to last season and the 5-year average at 5.32 MT/ha, with gains this month in France, Germany and the UK balanced by losses in Spain.
In France "abundant rainfall and (a) temperature increase during May and June depict a promising scenario for winter and spring cereals," they say.
"Cereals in major regions of the UK keep a higher-than-normal green biomass despite the tough weather conditions they have been subject to. However, disease pressure is expected to be high, given the continued rainfall, with an additional uncertainty on how it will managed," they add.
They now estimate UK wheat yields to average 8.16 MT/ha this year, which would be the second highest on record, and with a planted area of just under 2 million ha would suggest a crop of around 16.2 MMT this year. That would be around 5.3% up on last year.
French wheat yields are seen increasing 8.4%, with German yields up by 4.2%.
UK barley yields are forecast 2.6% higher at 5.81 MT/ha, with French yields coming in 13.2% up on last year and German yields rising 6.1%.
UK rapeseed yields are pegged at 3.34 MT/ha, 14.5% down on last year's record 3.91 MT/ha. French yields are forecast down 3%, but German yields are seen rising almost 20% on last year's drought-ravaged crop.
Lunchtime News
26/06/12 -- The electronic grains are mixed with wheat 2-5 cents lower, soybeans 5-7 cents higher and corn up 10-15 cents. Crude oil is down 20 cents at USD79/barrel.
US weather offers no more encouragement today than it did yesterday.
India says it urgently needs to move 1 MMT of wheat stored out in the open as the monsoon season arrives. Having paid over the odds for it domestically the government, not surprisingly, have wheat oozing from every orifice.
Reports suggest that the government have finally decided to bite the bullet and sell some stocks off at discounted levels to get some movement, rather than see the stuff rot in the fields.
A Dow Jones survey estimates June 1st corn ending stocks at 3.18 billion bushels compared with 3.67 billion a year ago. Soybean stocks are estimated at 640 million, versus 619 million last year and wheat stocks are pegged at 726 million versus 862 million.
A similar survey estimates US all wheat plantings at 56.9m (vs 55.9m in March), corn plantings at 96.0m (95.9m) and the soybean area at 75.6m (73.9m).
The USDA will reveal all on Friday.
The world and his wife are lining up to knock big percentages off the USDA's optimistic yield projections this year.
Farm Futures magazine puts corn yields at 156.9 bu/acre this year, down from the USDA's estimate of 166 bu/acre and pegs soybean yields at 41.3 bu/acre against the USDA's 43.9 bu/acre. Their estimates are typical of where a whole host of others are lining up.
Standard Chartered say that China could import 72.2 MMT of soybeans in 2012, an average of 6 MMT a month, and far more than any other estimate around.
A Spanish bond auction today saw three-month bills pay yields of 2.36 percent, nearly triple the 0.85 percent they got away with paying only a month ago. The rate on 6-month bills was 3.24 percent, almost double the 1.7 percent paid in May. Italy's borrowing costs also spike higher today.
EU Rapemeal Prices
26/06/12 -- Rapemeal prices on the continent are mixed today. Despite a sharply higher close in Chicago soymeal last night traders say that yesterday's levels already had some in-built protection.
Guide prices, basis FOB Lower Rhine in euros/metric tonne, with change from previous session:
| Jul12 | 272.00 | +2.00 |
| Aug12 | 254.00 | +1.00 |
| Sep/Oct12 | 248.00 | -5.00 |
| Nov12/Jan13 | 246.00 | -1.00 |
| Feb/Apr13 | 242.00 | -3.00 |
| May/Jul13 | 224.00 | -4.00 |
| Aug/Oct13 | 192.00 | unch |
| Nov13/Jan14 | 200.00 | -1.00 |
The Morning Paper
26/06/12 -- Follow through buying after last night's limit up move on corn currently sees the grain post further gains of 6-7 cents on the electronic market as I type. In fact that should be re-type as corn was 10-15 cents higher when I started writing this. Beans and wheat are taking a bit of a breather, mostly 2-3 cents lower. Strike that, they were 2-3 cents lower, now it's 6-7 cents lower on beans and 10-12 cents easier on wheat.
Cyprus has asked for a bailout, and may require as much as EUR10 billion, according to the morning press. In a reflection of the times we are in the market reaction is "EUR10 billion? Is that all? I'm only interested in amounts larger than EUR100 billion these days."
EUR10 billion is, for Cyprus, a very large amount - more than half it's entire economy in fact, according to Reuters.
The market is focused on the upcoming EU leaders summit at the end of the week, and hoping (rather than banking on) for a rabbit to be extracted from the hat. It seems likely to be another lot of hot air, and noble but vague statements that they have a cunning plan to ensure that good times are round the corner.
They can't however tell us what that plan is, because that would spoil the surprise. But rest assured sweet cheeks, there really IS a plan. Honest.
The new Greek finance minister won't be a part of it though. He's now the old Greek finance minister, having lasted less time than England's Euro hopes, after resigning due to ill health less than a week into the job. If he's that ill he has to resign on the back of it then you'd have thought he'd have known it a week ago wouldn't you?
Fundamentals....
Egypt's GASC says it's managed has "at least" seven months worth of wheat stocks following it's own domestic harvest and will probably not be back in the market to buy on the international stage until August.
Last night's USDA crop condition ratings saw corn good/excellent cut six percentage points, as opposed to soybeans which only saw a 3 point cut amongst the top two categories. Corn ratings have held up better than soybeans in the previous couple of weeks reports, so you maybe could say that this is the USDA making up for a bit of lost time on corn.
With good/excellent of 56% now well below last year's 68% at this time the pressure is on for a large reduction in prospective yields in the USDA's July 11th report. With more than one eye on that they may well be tempted (or even forced) to come up with a big acreage number for corn on Friday.
Ditto soybeans, where the March acreage estimate of 73.9 million was below even the lowest trade estimate at the time. There is every likelihood that they will up that by at least a million and maybe more.
Creative accounting they call it in Washington, and most other places too.
Nov 12 London wheat is a pound lower in early trade, it too seemingly doing a bit of consolidation following yesterday's steep gains. Last night's close was the highest in just over a year for it, taking ex farm levels to over GBP155/tonne off the combine for feed wheat.
Is that a "the plate only gets passed around once" selling opportunity? Or merely a stepping stone to higher levels? From a purely UK perspective it may be worth remembering that the last time it pissed it down this much all summer - 2008 - we finished up with our highest ever wheat yield of 8.3 MT/ha and the one an only time we managed a crop in excess of 17 MMT.
We've had four 8.0 MT/ha yields (plus that 8.3 MT/ha) in the last 12 years. Looking at the crop in the field now I don't think that there would be many who would bet on this season being any lower than that. So we are probably in line to at least match our second highest wheat yield on record.
A quick flick through the record books tells me that front month November wheat has never been higher than it is today on the 1st of August in any year in history. It's only been higher than it is today on the 1st of November once - the great Russian crop disaster year of 2010.
Our yield in 2010 was a not very special 7.7 MT/ha, and production was less than 15 MMT incidentally.
So is 2012/13 going to offer a repeat performance of the hitherto one-off season of 2010/11? Well, the Russian crop has been downgraded significantly, but things are nowhere near as dire as they were in 2010 my spies over there tell me. Neither would many be willing to stake too many roubles on them introducing an export ban at the beginning of August as they did back then.
We will of course (presumably) have Vivergo to feed, assuming that they can make the economics (and the plant) work. In theory that takes a million tonnes off the market, although the reality of the situation is likely to be less than that.
Ensus? Well, who knows? They've been quieter than Ann Frank's drum kit recently. That could make a difference, although crude oil slumping 25% in the past eight weeks whilst Nov 12 London wheat has gone up a tenner wouldn't seem to suggest that the economics of turning wheat into bioethanol have suddenly become more viable.
Chicago Jumps, Led By Limit Up Corn
25/06/12 -- Soybeans: Jul 12 Soybeans closed at USD14.82 1/2, up 40 cents; Nov 12 Soybeans closed at USD14.25 1/2, up 50 cents; Jul 12 Soybean Meal closed at USD432.80, up USD10.80; Jul 12 Soybean Oil closed at 51.27, up 153 points. Funds were heavy buyers on the day, booking an estimated 12,000 soybean contracts along with 4,000 of meal and 5,000 of oil following a hot and dry weekend in the US with the promise of more to follow this week. Note that new crop is now gaining on old crop. The USDA reported the sale of 120,000 MT of soybeans to China for 2012/13 delivery. After the close they cut good/excellent US crop ratings by three percentage points to 53%. A choppy week lies ahead it would seem, dictated by daily weather forecasts, Friday's USDA stocks and planting numbers and developments in Europe.
Corn: Jul 12 Corn closed at USD6.31, up 40 cents; Dec 12 Corn closed at USD5.94, up 40 cents. The first five positions on corn all closed the daily 40 cent limit higher in the grip of a full blown weather market, helped by funds coming in to buy an estimated 21,000 contracts on the day. Lack of rainfall and high temperatures across much of the corn belt as corn enters the key pollination stage early are behind the move. After the close the USDA cut good/excellent corn ratings by six percentage points to 57% - a larger drop than the trade was anticipating. This time last year the crop was rated 63% good/excellent and yet we still only finished up with a 147 bu/acre yield. The current USDA estimate of a record 166 bu/acre yield clearly has to be reduced considerably next month.
Wheat: Jul 12 CBOT Wheat closed at USD7.24 1/4, up 51 cents; Jul 12 KCBT Wheat closed at USD7.33, up 47 cents; Jul 12 MGEX Wheat closed at USD8.80, up 21 cents. Funds were said to have been net buyers of around 8,000 Chicago wheat contracts on the day. Spillover strength from corn and short-covering were a feature. Backing up the bullish theme was the Russian Ministry cutting their grain production estimate from 94 MMT to 85 MMT, with the wheat harvest now predicted at 46-49 MMT versus 56.2 MMT last year. Exports are also seen sliding from 20 MMT this season to 16-18 MMT in 2012/13. The Ukraine state weather centre also lowered it forecast for grain production there too. After the close the USDA said that the US winter wheat harvest is 59% complete, more than twice the normal pace. Spring wheat crop conditions were raised to 77% good/excellent, with 57% of the crop headed compared to just 18% normally.
EU Grains Surge Higher On US Weather
25/06/12 -- EU grains closed sharply higher with Jul 12 London wheat up to GBP188050/tonne and Nov 12 London wheat rising GBP6.45/tonne to GBP168050/tonne. Aug 12 Paris wheat rose EUR5.75/tonne to EUR220.00/tonne and Nov 12 was up EUR8.50/tonne to EUR225.00/tonne.
These were more than 12-month highs for both Nov 12 London and Paris wheat as US weather across the weekend remained hot and dry. Forecasts for the week ahead offer more of the same with temperatures in the Midwest set to hit 100F.
"Corn silking and pollination is advancing in the earliest planted fields. This is a yield-sensitive period of crop development that demands .20 inch of moisture, per day, for successful kernel development. There is not enough ground moisture to supply increasing crop needs on the majority of Midwest farms," said Martell Crop Projections.
The USDA is expected to cut corn good/excellent crop condition ratings by around 3-5% this evening.
Chicago corn touched limit up (plus 40 cents) in afternoon trade, dragging wheat with it.
Adding fuel to the fire was Russia's Ag Ministry cutting their grain production estimate from 94 MMT to 85 MMT, a drop of almost 10% on last year due to winterkill and spring drought. Export potential will fall 26% to 20 MMT from 27 MMT this season, they added.
Similarly, Ukraine's national weather centre forecast the grain crop there at 43-44 MMT vs the Farm Ministry's estimate of 48-49 MMT and compared 54 MMT in 2011/12.
The market is extremely excited, and now almost universally bullish, by the news coming out of America (which is bullish for corn rather than wheat) and is backed up by reduced production estimates for Black Sea wheat.
For now, European debt concerns appear to have been placed on a very low simmer at the back of the hob. Almost a lone voice in the wilderness today was billionaire investor George Soros calling on Europe to start a fund to buy Italian and Spanish bonds, warning that a failure by finance leaders at this week's EU summit to produce drastic, tangible and credible measures to stave off the debt crisis could spell the demise of both the eurozone and the euro.
EU Rapemeal Prices
25/06/12 -- Rapemeal prices on the continent are sharply higher following another largely hot and dry weekend in the US that sees soymeal prices USD12-17 firmer in the electronic Globex market this morning.
Latest guide prices for EU rapemeal today, basis FOB Lower Rhine in euros/metric tonne, with change from previous trading session:
| Jul12 | 270.00 | +8.00 |
| Aug/Oct12 | 253.00 | +16.00 |
| Nov12/Jan13 | 247.00 | +13.00 |
| Feb/Apr13 | 245.00 | +13.00 |
| May/Jul13 | 228.00 | +12.00 |
| Aug/Oct13 | 192.00 | +5.00 |
| Nov13/Jan14 | 201.00 | +6.00 |
The Morning Paper
25/06/12 -- A quick glance at the electronic market will tell you that it's been a hot & dry weekend in the US, with not a lot of relief in sight.
There is little in the way of rain forecast for the entire Midwest for the next 2-3 days, with fair coverage for Nebraska, Iowa, northern Illinois and southern South Dakota in the 4-7 day timeframe. As ever, there's a chance of some more widespread 0.75-1.5 inch coverage in the 8-15 day forecast (1st-9th July), but that is still some way off and recent widely touted rainfall events have largely disappointed (a bit like England in the Euros).
European grains have opened sharply higher, following the US lead, with Nov 12 London wheat up GBP3.95/tonne in early trade to GBP165.50/tonne - it's highest in just over a year. Nov 12 Paris wheat is also at a more than 12-month high of EUR221.00/tonne.
Apart from that fresh news is pretty limited so far. Spain has formally requested a bailout of up to EUR100 billion for its banks. The euro is down a bit on the news even though it was a formality in coming.
EU leaders continue to "talk the talk" ahead of their summit at the end of the week. Last week's EUR130 billion growth stimulus package announced by Germany, Spain, Italy and France seems like another hot air publicity stunt to me.
Meanwhile I read with interest over the weekend one report that points out that of the EUR500 billion that the The European Stability Mechanism (ESM) is supposed to have in its "pledged" theoretical kitty almost a fifth is to come from the already skint Portugal, Ireland, Spain and Greece. A further 18% is meant to come from Italy.
Charity begins at home, they say.
The grains may be up, but crude oil is down again. Having briefly managed to claw its way back up above USD80/barrel on Friday WTI NYMEX crude currently trades at USD79.36/barrel. One report out from Credit Suisse last week suggested that USD50/barrel could be on the cards in a "worst case scenario" before the current slump ends.
