EU Wheat Closing Comments - Tuesday
London wheat continues to punch above it's weight, with Nov 12 closing within GBP1.00/tonne, or 0.5%, of the lifetime closing contract high. By contrast Nov 12 Paris wheat finished the day EUR14.75/tonne, or 5.5%, below its lifetime closing high.
As far as UK wheat supply and demand situation is concerned the big news of the day was the announcement that Ensus is to re-open after a 15-month shutdown.
Early UK wheat harvest results continue to be mixed, with Farmers' Weekly reporting that 75% of milling wheats coming into one Kent storage facility are failing to meet the required specification.
The Ukraine government estimate this season's grain crop at 45.0 MMT, down more than 20% on last year. Of that total wheat will account for 16.3 MMT versus 22.6 MMT in 2011, they add.
Private analysts are more pessimistic, estimating total grain production at 40.0-42.6 MMT, with wheat output around 13.6-14.0 MMT.
Looking ahead, the Ukraine Ministry estimate winter grain plantings at 8.2 million ha versus 8.4 million in 2011. Wheat sowings are seen down marginally to 6.6 million ha.
Recent heavy rains are seen as likely being beneficial to developing Ukraine corn and sunflower crops, plus early planted winter rapeseed.
Having been out of the market since April, Egypt was back with a second tender in a week, buying one cargo each of Russian and Ukraine wheat for September shipment. The Russian wheat was priced up around USD3.50/tonne cheaper than their weekend purchase.
The Lunchtime Byte
14/08/12 -- News that Ensus are to re-open their Wilton bioethanol plant after a 15-month shutdown is the big story of the day. It's on Reuters AND in the Middlesbrough Evening Gazette, so it must be true even though Agrimoney.com reported as recently as Friday that an Ensus spokesman had said that they "have not made a formal decision over when they can restart."
Does that mean then that the decision was made spontaneously over a few rounds of sandwiches in the last couple of days? That bastion of the British press that is the 'Boro Gazette says that Ensus will be "on line by the end of the month" and fully operational inside two.
North East wheat growers will be dancing a little jig of joy at the news that's for sure. Is there a Lamborghini dealership in Middlesbrough I wonder? If there isn't it could be a marketing opportunity of you're quick.
That could certainly make for an interesting market when Vivergo fires up too and with the Black Sea countries looking likely out of the export market in the new year.
Other news is pretty thin on the ground. Japan is tendering for 70,865 MT of US wheat and Algeria is in for 50,000 MT of optional origin wheat having bought 400,000 MT of US durum wheat yesterday.
Egypt are back tendering for wheat today having bought two cargoes of Russian wheat at just under USD316.50/tonne excluding freight over the weekend. Unconfirmed reports just breaking suggest that they may have bought one cargo each of Russian and Ukraine wheat at around USD313-314/tonne.
A Moroccan tender, its first of 2012/13, for 300,000 MT of US soft wheat attracted no bids. Grain production there is said to be down 39% this year.
India continues to let some of its surplus wheat stocks trickle out into the market at these levels.
Malaysian palm oil futures fell to a 10-month low yesterday.
The Ukraine Ministry say that farmers there will plant 8.2 million hectares of winter grains for the 2013 harvest, down 2.6% on last year. Recent heavy rains should be beneficial in aiding crops to get established, something that didn't happen last year.
The July NOPA US soybean crush came in at 137.38 million bushels, up 3.224 million on June and well above the 131 million expected.
EU Rapemeal Prices
14/08/12 -- Rapemeal prices on the continent are sharply lower today in line with steep losses in Chicago soymeal last night.
Latest guide prices for EU rapemeal today, basis FOB Lower Rhine in euros/metric tonne, with change from previous trading session:
| Aug12 | 282.00 |
-9.00 |
| Sep/Oct12 | 282.00 |
-9.00 |
| Nov12/Jan13 | 282.00 |
-6.00 |
| Feb/Apr13 | 280.00 |
-5.00 |
| May/Jul13 | 244.00 |
-4.00 |
| Aug/Oct13 | 209.00 |
-6.00 |
| Nov13/Jan14 | 218.00 |
-3.00 |
The Morning Wire
14/08/12 -- There's only a very modest sign of a Turnaround Tuesday type scenario so far this morning. Wheat was in positive territory but has now slipped into the red, with corn 2-3 cents higher and soybeans up 15 cents on about to expire August and generally 5-7 cents firmer on the rest.
Aug 12 soybeans, meal and oil all go off the board today.
Sep 12 CBOT wheat closed at it's lowest level in exactly a month last night, yet Nov 12 London wheat finished within GBP2.35/tonne of the life of contract closing high. Nov 12 Paris wheat incidentally ended last night EUR12.50/tonne off the life of contract closing high.
Versus the late-November lows Chicago Dec 12 wheat is up 33%, Nov 12 London wheat up 42% and Nov 12 Paris wheat up 50%.
Based on very early harvest results here in the UK it's looking like a wheat crop of 14.0-14.5 MMT is on the cards versus 15.3 MMT last year and the USDA's current 15.5 MMT prediction.
Also based on what's been cut so far the proportion of feed to milling wheat is likely to be much higher than it was last year. Indeed, I'd go as far as to say that even if total output is down around a million tonnes on last year, we'll have a larger feed wheat crop than we did in 2011.
Heavy rain has fallen in Ukraine across the last 24 hours, with Agritel reporting 48mm in the capital Kiev. Agritel are calling this rain event "the most important since the beginning of agricultural work in the spring," which should be good news for recently planted new crop rapeseed and the still developing corn and sunseed crops. According to the Ministry at least the 2012 wheat, barley and rapeseed harvest is just about finished.
After buying 120,000 MT of Russian wheat over the weekend, Egypt immediately issued a second tender for more wheat last night with the results expected later this afternoon.
"Canadian wheat looks generally promising for a favourable harvest. The USDA August wheat estimate was bumped up to 27 MMT on Friday, the biggest harvest in 3 years, increasing export potential to 19.50 MMT (up 2 MMT from 2011/12)," say Martell Crop Projections.
Elsewhere: "China is expecting a record corn harvest this season. Growing conditions have been very favourable with abundant rainfall and non-threatening temperatures on the Manchurian Plain, the key growing area.
"The projected 200 MMT of corn production, the USDA's new estimate, would be the 9th consecutive record harvest and 4% higher than last season. The national corn yield would also set a record at 92.9 bushels per acre. China's corn yields have been climbing at a steady rate of 1 bushel per acre, per year with improving technology for 15 years.
"However, China corn productivity will still fall well short of the United States. US corn productivity this season, while severely depressed by drought, is still well above China's 93 bushels per acre pegged at 123.4 bushels per acre," they add.
Fresh from having sold 190,000 MT of wheat last week (and 240,000 MT in July), one of India's state-run grain houses is back in the market offering 125,000 MT for tender again this week. Asian buyers are probably the most likely takers for that.
Both Australia's and Japan's weather bureaus say that a switch from the La Nina weather pattern into El Nino is underway. El Nino would typically bring drier than normal conditions to India, amongst others, where monsoon rains are currently 17 percent below normal so far this year.
Drier than normal conditions are also generally observed in Eastern Australia in an El Nino year, with rainfall typically increasing in South America - just in time for record soybean plantings in Brazil and Argentina. Indeed, one contact in Brazil emailed me yesterday to say "our weather down here seems to be finally turning. After about 18 months of drought in the south, some rains are appearing which we hope will enable us to plant better later in the year."
Chicago Market Slumps On Fund Selling
13/08/12 -- Soycomplex: Aug 12 Soybeans closed at USD16.56 1/4, down 53 1/4 cents; Nov 12 Soybeans closed at USD16.00 3/4, down 43 cents; Aug 12 Soybean Meal closed at USD526.30, down USD18.20; Aug 12 Soybean Oil closed at 52.95, down 65 points. When prices get this high, daily movements that would previously have been considered extreme become the norm. Funds dumped an estimated 12,000 soybean contracts on the day after weekend rains and as US weather forecasts offered a cooler and wetter outlook. "Chances for heavy rainfall continue most promising in the Great Lakes-Eastern Midwest this week where 1-1.5 inch amounts are predicted. West of the Mississippi River light to moderate rains are predicted from .25 to .75 inch. Normal weekly rainfall is around .85 inch in mid August. Midwest temperatures would be very cool this week as the heat dome gets nudged westward toward the Pacific Coast," said Martell Crop Projections. After the close the USDA pegged soybean good/excellent crop condition one point higher than last week at 30%. Weekly export inspections of 15.7 million bushels were above the level required to meet the USDA's 2011/12 full marketing year target of 1.35 billion with only three weeks of the campaign left to go.
Corn: Sep 12 Corn closed at USD7.82 1/2, down 17 1/2 cents; Dec 12 Corn closed at USD7.92 1/2, down 16 3/4 cents. Funds were said to have been featured sellers of around 16,000 corn contracts on the day. Weekly export inspections of 22.276 million bushels were better than expected although much lower than a year ago at this time. US corn is said to be USD35/tonne more expensive than Brazilian origin material. Japan is said to be in the market for several of cargoes of Brazilian corn for Oct/Dec shipment. US poultry processors Pilgrim’s Pride and Smithfield Foods are said to be buying or negotiating to buy corn from Brazil. Malaysia and Indonesia are said to be buying corn from Pakistan. The USDA left good/excellent crop conditions unchanged at 23% with poor/very poor raised one point to 51%. Early harvesting results are coming in highly variable, but with plenty of 100 bu/acre or less reports, although in general the poorer crops will be harvested first. Silaging corn, rather than harvesting it for grain, is also common which suggests that the USDA still needs to do some adjustments to their acreage estimates.
Wheat: Sep 12 CBOT Wheat closed at USD8.56 3/4, down 28 1/2 cents; Sep 12 KCBT Wheat closed at USD8.64 3/4, down 28 1/4 cents; Sep 12 MGEX Wheat closed at USD9.12 1/4, down 23 1/4 cents. Funds were said to have been net sellers of around 7,000 Chicago contracts on the day. Egypt snubbed US and EU wheat to buy two cargoes for September shipment from Russia at substantially discounted levels over the weekend. The latter are clearly not out of the market yet. Egypt promptly issued another tender mid-afternoon US time, the results of which should be known tomorrow. The USDA put the US winter wheat harvest at 94% complete. Spring wheat harvesting is well ahead of normal at 65% done versus just 24% normally. Spring wheat crop conditions fell two points in the good/excellent category to 61%. Weekly export inspections of 22.205 million bushels were respectable. FranceAgriMer increased their French all wheat crop estimate to 38.8 MMT, broadly in line with the USDA's revised 39 MMT forecast released on Friday. A 7% increase in plantings and improved yields will see US wheat production 13% higher than last season’s drought depressed crop, the USDA said Friday.
EU Wheat Declines In Consolidation Mode
The trade appeared to be in consolidation mode, disappointed that following Friday's bullish USDA data Chicago wheat and corn closed lower in a market saturated with speculative length.
Egypt bought 120,000 MT of Russian wheat for September shipment over the weekend at levels substantially cheaper than French or US offers. They clearly haven't pulled away from selling just yet.
FranceAgriMer pegged the 2012 French soft wheat crop at 36.5 MMT versus their previous estimate of 35.9 MMT and a 2011 wheat crop of 34.0 MMT, a 7.4% increase. As of Aug 9th the average yield was 7.5 MT/ha compared to the 5 year average of 7.1 MT/ha. Protein levels are said to be averaging 11.0-11.5 percent.
The durum wheat crop was estimated at 2.3 MMT versus 2.0 MMT in 2011 with an average yield of 5.3 MT/ha. Barley production is forecast at 11.5 MMT, up 31% on last year's 8.78 MMT.
Rapeseed output was seen at 5.3 MMT, unchanged from 2011 with an average yield of 3.4 Mt/ha.
Friday's USDA report was least bullish for wheat, with 2012 US yields forecast increased to 46.5 bushels an acre from 45.6 bushels an acre.
There were rains in parts of the Midwest over the weekend with further rains and cooler temperatures in the forecast for later this week.
The US states of Maryland and Delaware have asked the Obama administration to waive the existing requirement to include ethanol in gasoline sold at the pumps. Other US legislators are asking for a relaxation of the ethanol mandate due to low corn supplies and high prices.
One private estimate out today pegs the combined wheat production of Russia, Ukraine and Kazakhstan at 66.3 MMT this year, a 34% reduction on last year and 2.5 MMT below the USDA's Friday estimate.
Wheat exports from the trio are seen at 18 MMT, down 51% on 2011/12 and 3 MMT less than the USDA said last week. Corn exports are less likely to be impacted by the drought, down 16% to 12.8 MMT versus the USDA's predicted 14.0 MMT suggestion.
News Snippets
13/08/12 -- At 2pm London time the electronic market trades with wheat down 19-20 cents, corn 14-15 cents lower and soybeans 25-30 cents easier to start the week on profit-taking and chart weakness.
US crude is up the best part of a dollar, and close to it's best levels since May on reports that Israel is considering a strike against Iran over its nuclear program.
Egypt bought two cargoes of Russian wheat in a weekend tender - it's first since April - at considerably cheaper levels than US or French wheat was offered at, drought or no drought.
Asian buyers are looking at cheaper alternatives to US corn such as feed wheat from Australia and India, or Brazilian corn at around a USD35/tonne discount to US origin material.
Trade talk suggests that Friday's revised USDA corn abandonment rate of 9.3% is too low for a drought year as severe as this, and that final harvested acreage will come in significantly lower than the 87.4 million acres that the USDA now predict.
Rusagrotragrotrans say that Russia will export around 3.0 MMT of grains in August, 3.2-3.5 MMT in September and a further 3.7 MMT in October. Add in 2.1 MMT already exported in July and there's this year's projected 12 MMT of shipments gone already.
Public awareness of the magnitude of the US drought is growing. So too are calls for an at least temporary removal of the ethanol mandate. Expert opinion is divided over exactly how much impact that would have on US corn demand, with some arguing not very much at all. It is perhaps more important as far as the market is concerned to consider what the funds' perception of the impact would be. A stampede for the exit door might be the most likely scenario. They aren't of course buying corn because they need it or have an end use for it. Being involved in a game where the rules change halfway through isn't their idea of fun.
The Morning Rant
13/08/12 -- The overnight grains are lower, possibly on overnight rains in Illinois pushing east into Indiana this morning.
Maybe there is also a bit of unease concerning the hitherto "written in tablets of stone" ethanol mandate. The director-general of the UN's Food and Agriculture Organisation wrote to the FT last week calling for an "immediate, temporary suspension" of the RFS.
This morning I read that the G20 are to arrange an "emergency forum" to discuss rising food prices and what they can do about them. Here's bright idea, how about removing all subsidies, incentives and mandates that require us to turn food into fuel regardless of whether the economics of the equation stack up or not?
Not really rocket science is it? Simpler than the Daily Mail crossword in fact. Don't give me the jobs argument. "Look at the number of people that the industry employs" rubbish.
More people lost their jobs when Clinton Cards closed down than are employed by the UK biofuel industry FFS.
If an industry isn't economically viable without subsidies and/or a legal requirement that we must buy it's product no matter what, whilst that same legislation simultaneously pushes up the price of food then make it stand on it's own two feet I say. If it can't, then let it go the same way as other unsound business models and shut up shop.
