EU Grains Press Higher On Black Sea Downgrades
Further Black Sea crop downgrades look likely to to quickly rule out Russia, Ukraine and Kazakhstan as forces to be reckoned with on the international wheat export stage this season.
A Reuters survey pegs Russian, Ukraine and Kazakh wheat production at around 45.5 MMT, 13.0 MMT and 12.0 MMT respectively for a combined crop of 70.5 MMT. That's some 30% down on last year's output of around 101 MMT. The three Black Sea powerhouses would normally account for around a quarter of global wheat trade, but this is now expected to fall to more like 15% in 2012/13, according to Offre and Demande Agricole.
Russia's IKAR says that August grain exports will reach 3.5 MMT, adding to a total of 2.1 MMT shipped out in July. The Agriculture Ministry only estimate Russia’s entire 2012/13 exportable surplus at only 10-12 MMT, yet the government say that there is no immediate need to ban exports.
Russia's grain harvest is currently said to be around 38% complete nationally, and 80% done in the South of the country, the largest production area, where yields are 25-30% lower than last year.
At home, the UK winter barley harvest is around 60% complete with yields coming in around the five year average at 6.2-6.4 MT/ha, say ADAS. Specific weights are below normal, at 52-72 kg/hl, they add. The oilseed rape harvest is said to be only 35% complete, with highly variable yields of between 2.5 MT/ha to 5.5 MT/ha, but averaging 3.4-3.6 MT/ha, down around 10% compared with last season's record 3.9 MT/ha.
The main start of the winter wheat harvest is still a week or two away just yet, although a few fields have been cut so far. One report on Twitter today mentioned Cordiale being harvested in Cambridge with a disappointing yield of 7.4 MT/ha.
The trade is now braced for a big USDA report tomorrow, with US corn yields expected to take another sharp reduction to add to last month's 20 bushels/acre cut. No major changes are expected to US wheat output, with production seen only being trimmed fractionally. US 2012/13 ending stocks are forecast to rise from last month's estimated 664 million bushels to 681 million. World 2012/13 ending stocks are seen down from 182.4 MMT last month to 179 MMT this time round.
With prices at current levels wheat offers are popping up from some unusual sellers. Two Indian state run trading houses say that they have firm agreements to sell 190,000 MT of government wheat reserves for export. Bangladesh is said to be close to striking a deal to sell/barter 1 MMT of wheat to Iran.
The Lunchtime Ramble
09/08/12 -- Have you missed me? I've been in the Maldives for a bit of R&R, although I've kept my hand in with a couple of morning blogs every day as you may have noticed.
Yes, dedicated to the core, Nogger actually works a couple of hours a day even when on holiday in the Maldives.
So, I'm back, at least in a manner of speaking, although I'm not planning on hitting the ground running until Monday. So today/tomorrow I will be more like caressing the ground gently. Nibbling it's ear a bit and maybe giving it a bit of a tickle and a playful pat on the bottom.
I blame the jet lag. I was wide awake at 4.30am this morning and up by 5.30am so I'll probably be nodding off into my cocoa by half past seven tonight, which is about bedtime over there. I'd thoroughly recommend the place by the way. Imagine living in a nice sunny bar, manned by incredibly friendly staff, which has an enormous tropical fish tank in the middle of it into which you occasionally dip your head when you're hot, and you aren't far off.
It's a long way though, although the tedium was broken somewhat when a stewardess spilt a full tray of orange juice into the lap of a sleeping man about three rows in front of me on the way home yesterday. Rudely awoken by this impromptu and unique "golden shower" the guy was so startled that after she & he had dried himself off a bit he became so flustered that when she finally asked him if he'd actually like a glass of orange juice to drink, and he said yes, he then went and spilt that one all over himself too.
Although thinking about it, maybe that wasn't the mistake it seemed like at the time. Up a bit, down a bit, yes you've almost got it...
Emirates were very accomodating like that I have to say, with loads of entertainment on the screens in the headrest in front of you. Although beating the computer at chess with fools mate, which it kept falling for repeatedly despite being set on "level: hard", only has limited amusement value after the first sixteen goes.
They give you loads of free newspapers too. Talking of which, what on earth has happened to the Daily Mail crossword? It's never been overly testing I will grant you, but "17 down: one more than nineteen, six letters beginning with T" wasn't the kind of challenge I was looking for to help pass a long journey having spanked the computer at chess.
Anyway, the point is I am back, and for all of you who have emailed & sent me texts enquiring about mine, MrsN#3's & the dog's well-being, everybody is fine, you worry too much you do & I will be getting back to you individually next week.
Meanwhile the markets are fully steady I see, despite Russia having absolutely no intention whatsoever of introducing any export restrictions, honest.
I read one report this morning that said the Russian Institute for Agricultural Markets, IKAR, estimate Russia’s grain exports at 3.5 MMT in August versus a second highest on record for the month of July of 2.1 MMT last month. If this was the Daily Mirror crossword I'd now ask you "how much grain do IKAR reckon Russia will have exported by the end of August" and you'd go "erm, hang on where's that calculator, I think I put it over there next to my USB bunny rabbit thing that lights up and does a little dance every time I get an email, here it is, erm...I make that 5.6 MMT my little suntanned Nogger chum."
Right, so with the latest official word on grain exports now only 10-12 MMT, and half(ish) of that likely to be gone by the end of the month is anyone else getting the impression that maybe the Russian grain companies are currently exporting like stink, fully expecting that a ban is coming. A similar ban depressed domestic prices in 2010/11, despite buoyant global levels as you may recall. In fact Russian merchants were also pushing grain out of the country like Usain Bolt off a shovel in the summer of 2010 just before the export embargo was officially introduced.
So why deny that the inevitable is likely to happen now? The final clue to this not very complicated Daily Mail style puzzle is that Russia are to finally set to join the World Trade Organisation this month after 18 years of negotiations, high class naked dancing girls, lots of vodka and bribery.
Introducing an export ban now would make bad press. Once they are in however, they can halt shipments if there is "a threat to national food supplies" - a case that should be too difficult to prove. Indeed, exports of 3.5 MMT in August alone would add weight to their case for being forced into doing so.
Chicago Closing Comments - Wednesday
08/08/12 -- Soycomplex: Aug 12 Soybeans closed at USD16.30, up 24 3/4 cents; Nov 12 Soybeans closed at USD15.81 1/4, up 15 1/2 cents; Aug 12 Soybean Meal closed at USD521.90, up USD9.60; Aug 12 Soybean Oil closed at 51.58, up 29 points. Funds were said to have been net buyers of around 5,000 soybean contracts on the day as the market rallied late in the session as renewed weather models removed some of the rain that had been in the forecast for the US Midwest for later in the week. The USDA reported the sale of 140,000 MT of US soybeans to unknown for 2012/13 shipment, adding support. There's some trade talk that China may have used the recent price dip - soybeans had fallen a dollar and a half in the past two and a half weeks - to book up to 1 MMT of US beans. Domestic prices on the Dalian Exchange there are currently around USD20/bushel. Trade estimates for tomorrow's weekly export sales report are 250-450 TMT. Taiwan bought 12 TMT US beans for Aug/Sept shipment overnight.
Corn: Sep 12 Corn closed at USD8.10 3/4, up 14 3/4 cents; Dec 12 Corn closed at USD8.16 1/2, up 16 cents. Funds were said to have been net buyers of around 10,000 contracts on the day. A drier outlook to midday weather forecasts was supportive along with expectations for a strong weekly export sales number tomorrow following last week's announced big sale to Mexico. The trade is forecasting anywhere between 1-2 MMT. There's much uncertainty over exactly how low the USDA will go with it's yield estimate in Friday's WASDE report. A Dow Jones survey says 126.2 bu/acre, whist a Reuters one goes 127.3 bu/acre. The latter would be the lowest since 1997 and the former the worst since 1995. The NOAA officially declared that July was the hottest month ever in the US, with average temperature of 77.6 F, which is 0.2 degrees above the previous record set in 1936. Taiwan bought 23 TMT US corn for Aug/Sept shipment overnight.
Wheat: Sep 12 CBOT Wheat closed at USD8.99 1/4, up 10 1/4 cents; Sep 12 KCBT Wheat closed at USD9.03 3/4, up 7 3/4 cents; Sep 12 MGEX Wheat closed at USD9.45 1/4, up 9 cents. Wheat bounced back from a lower opening in early trade on spillover support from beans and corn despite Russia saying that it had no plans to restrict grain exports. Russia’s Ag Minister said that 38% of the 2012 grain crop has been harvested so far and that average yields are 2.17 MT/ha, down 27% from a year ago. Ukraine's Prime Minister said 2012 total grain supply is estimated at 58 MMT (including carryin stocks) with the 2012 grain crop forecast at 45 MMT. Their exportable surplus is said to be 21-23 MMT (including 5 MMT of wheat, 3 MMT of barley and 12.7 MMT of corn). Estimates for tomorrow's weekly export sales report are 400-675 TMT. The Buenos Aires Grain Exchange says that Argentine wheat plantings will be down 22% this year.
EU Grains Closing Comments
The euro was weaker on news that industrial output in Germany fell more than expected in June and comments from the French central bank that their economy will fall back into recession this quarter.
Not that it was all plain sailing for sterling either - the Bank of England slashed its outlook for British economic growth to zero for this year.
BoE governor Mervyn King said there was no urgent need to print more money, and even less of a case to cut interest rates, but warned that the British economy would grow at sub-par speed for at least the next three years.
Russia's deputy PM, Arkady Dvorkovich, said that there was no need to take any immediate action to curb grain exports following a government meeting to discuss global grain markets and the country's strong start to the 2012/13 export campaign - despite what is shaping up to be a sharp reduction in output.
"Tariffs are always possible for any commodity," Mr Dvorkovich went on to be quoted as saying however, which seems to leave the backdoor open for some form of export restrictions later in the season if grain shipments continue at their current pace.
Now that this meeting is out of the way the market will start to focus on Friday's upcoming USDA supply and demand numbers. US corn and soybean yields will undoubtedly be cut, but by how much? The USDA lopped 20 bushels/acre off projected US corn yields last month, and there are some that think a similar cut could be on the cards this month too.
There are signs that maybe US weather is finally turning, although probably too late to do a great deal of good for corn in particular.
"The new Midwest forecast is wetter and cooler than indicated yesterday. The jet stream is expected to carve out a deep trough causing generous rainfall and sharply cooler temperatures in the grain belt. Midwest corn and soybean farms are now expected to receive at least 0.75 inch of rain, but 1.25 - 1.50 inches locally," say Martell Crop Projections.
Chicago Grains Tuesday Morning
07/08/12 -- The overnight market sees wheat 4-6 cents firmer, with corn up 3-5 cents and soybeans mostly 10-14 cents higher - with the exception of front month August which hovers around unchanged.
Wheat gains from ideas of reduced Black Sea production, and thus increased US export hopes, particularly in the final three quarters of the 2012/13 season after the initial rush of Q1 sales has passed from the likes of Russia and Ukraine.
Late last week we had a US corn production estimate of just 9.57 billion bushels from Farm Futures magazine, which would be the lowest output since 2002 despite the largest planted area in 75 years. Their anticipated yield figure of 114 bpa would be the lowest since 1995.
At this point it is worth considering that less than two months ago we were potentially looking at what was set to be easily a record US corn crop. Using the USDA's June acreage report's 96.4 million acres, assuming an average 8% abandonment rate and the then expected 166 bpa yield we'd have been talking a crop in excess of 14.7 billion bushels this year, more than 5 billion more than now looks to be on the cards. Which is coincidentally enough to keep the US ethanol juggernaut on the road for another 12 months.
If Farm Futures are correct, then the US will now use more than half of this year's corn crop to make ethanol, based on the USDA's July S&D estimate of 4.95 billion bushels of corn demand coming from that particular sector in 2012/13.
No wonder then that there are growing calls for the ethanol mandate to be partially or even fully waivered in 2013. How much difference that would make to the two-headed monster that is the US ethanol industry is open to debate. It would certainly make for an interesting experiment, if maybe a potentially unlikely one in an election year.
Soybeans meanwhile have paused for breath, having rallied by almost two thirds since mid-December, with the faint glimmer of hope that decent August rains could still finally help the crop make some kind of decent yield.
If those rains fail to materialise and we are left with something closer to Farm Futures Magazine's estimated 2.696 billion bushel crop then who knows where prices might go yet? It's been abundantly clear for some time that the US is just about the only seller of soybeans in the world who's shop is still open.
Brazil exported 22.92 MMT of soybeans between Jan/Jun this year - some 87% of the expected total soybean exports for the entire year. Argentina too are widely considered to be out of the market. Meanwhile China keep coming back for more (they bought 106 TMT of US soybeans just yesterday) and are expected to import around 58-60 MMT of soybeans in 2012. Incidentally, some estimates for their 2013 requirements are in excess of 70 MMT.
Planting of Brazil's 2013 soybean crop won't begin for more than a month yet, with harvesting of the earliest beans still five months away, and all sorts of hurdles to get over before those particular combines start rolling.
EU GrainsTuesday Morning
07/08/12 -- EU grains are modestly higher mid-morning Tuesday with Nov 12 London wheat up GBP1.00/tonne to GBP192.50/tonne and Nov 12 Paris wheat EUR1.00/tonne firmer to EUR259.50/tonne.
A firmer overnight tone to US grain markets adds support, with US corn crop conditions declining to the extent that half the crop there is now rated as being in poor or very poor condition.
Further supporting European grains are further reductions in anticipated Black Sea output. Yesterday we have SovEcon cutting their outlook on Russian wheat production to 40.3-43.0 MMT from 46.5 MMT previously and 56.2 MMT last year.
Today we have news that Ukraine is experiencing record temperatures,which are expected to continue for the rest of the week with up to 40°C expected in some places. "These are the highest recorded temperatures for the last 112 years and this will probably affect the production of corn and soybeans," say Agritel.
What will tomorrow bring? The Russian government are due to meet to discuss the grain markets and their dwindling production prospects, with wheat output now seen in the region of the 2010 crop of 41.5 MMT that prompted the last export ban.
Despite having publicly said that an embargo is not on the cards this year surely some sort of action will be required with a near record 2 MMT of grains already having been exported in July, and 2.5 MMT forecast to be shipped out in August.
Chicago Closing Comments - Monday
Corn: Sep 12 Corn closed at USD8.03, down 7 cents; Dec 12 Corn closed at USD8.05, down 2 1/2 cents. Weekend rains, and a wetter outlook, is less likely to be of benefit to corn than soybeans at this stage. Funds were estimated to have been net sellers of around 4,000 corn contracts on the day, enough for a modestly lower close. Safras e Mercado estimated Brazil’s 2011/12 corn crop at 72.4 MMT versus the USDA's 70.0 MMT. They also placed Brazil’s 2011/12 corn exports at 15.5 MMT, well above the USDA's forecast 11.0 MMT. The USDA crop condition report cut good/excellent ratings by one point to 23%, with very poor raised two points to 25%. That now leaves exactly half of the crop rated as poor/very poor. High temperatures and early planting have the crop very forward, at 26% dented already compared to the 5 year average of only 7%. Doane estimated the 2012 US corn crop at 10.792 billion bushels and pegged yields at 123.1 bpa. The USDA will released their own updated estimates on Friday. Ethanol plants continue to voluntarily slow or cease production as their profit margins narrow or disappear altogether.
Wheat: Sep 12 CBOT Wheat closed at USD8.93 1/4, up 2 cents; Sep 12 KCBT Wheat closed at USD8.95, down 1 cent; Sep 12 MGEX Wheat closed at USD9.44 1/2, unchanged. SovEcon estimated Russia’s 2012 grain crop at 72.0-75.0 MMT versus their previous estimate of 78.5-81.5 MMT and 94.0 MMT last year. Of that they say that Russia’s 2012 wheat crop will be 40.5-43.0 MMT versus their previous estimate of 46.5 MMT and 56.2 MMT last year. The USDA's current estimate is 49.0 MMT. If those figures are correct than some form of export curb looks a real possibility once again. Russia’s Ag Ministry say that the grain crop this year will total 75-80 MMT, with the wheat crop at 45.0 MMT. Saudi Arabia bought 290 TMT of hard wheat from the US, EU, Australia, and South America for Oct/Nov shipment over the weekend. There are some reports that Texas feed lots are looking at buying wheat from Canada. The USDA reported the winter wheat harvest at 88% complete, only one point ahead of normal. By complete contrast spring wheat harvesting has raced ahead to 47% done versus just 12% normally at this juncture. Good/excellent spring wheat conditions were unchanged at 63%.
EU Wheat Lower On US Rains
Better and more widespread weekend rains in the Midwest weighed on the grains sector, although further concerns over Russian grain production underpinned losses.
"Waves of strong thunderstorms on the weekend produced more than one inch of rainfall on 65% of corn and soybean farms. It was the best weekly rainfall since late May in the grain belt. The GFS model forecast on Friday under-estimated the rainfall both in quantity and coverage," said Martell Crop Projections.
"August rainfall would be more beneficial for soybeans than corn. The soy crop is in the midst of setting pods. The bean filling stage follows pod setting period and takes 30-35 days to complete. Plants are stunted from severe drought, certain to make a low yield, but with generous rainfall for bean-filling conditions would improve somewhat. Midwest corn is mostly beyond repair though rains may boost late grain filling," they added.
One contact in the US emailed me to say: "Corn harvest started last week at Arthur, Illinois, a month and a half earlier than normal. The yields were said to be 100 bu per acre at 24% moisture, which is half of the yield those guys in the good black dirt area of Illinois expect to get, but still much better than most thought possible."
Elsewhere, SovEcon cut their forecast for Russian grain production this year to 72-75 MMT, some 20-23% down on last year, and well below their previous estimate of 78.5-81.5 MMT. Wheat production this year is now only forecast at 40.3-43.0 MMT, down from a previous estimate of 46.5 MMT and around the same level that prompted the Russian export ban in 2010 (41.5 MMT).
The Russian government meet on Wednesday to discuss the situation, although they have recently stated that they will not be introducing an export ban again this year.
Closer to home, FranceAgriMer report that 80% of France's spring barley crop is in good or excellent condition compared to only 25% this time last year. Higher levels of damage to winter wheat and barley than normal see French spring barley plantings at a more than 20 year high.
The combination of this significant increase in acreage, and excellent crop conditions, mean that "the country could have more than twice as much malting barley for export as normal, boding ill for prices," report Agrimoney.com.
