Tuesday, July 15, 2008

International grain values under pressure

International corn values have eased as concerns over the impact of US Mid-west floods subsided. This and the commencement of the northern hemisphere winter harvest placed pressure on international grain values over the past fortnight.

On Friday night, the USDA actually increased 2008/09 US corn end stock estimates, largely on weaker demand. But this market is in no position to relax, as threats to yields from hot weather have only just started. Expect prices to stabilise around current levels, with the potential for savage breakouts to the upside on adverse weather in the US Midwest.

Concerns over US corn production should help limit downside potential in global coarse grains and wheat values over the next few months, despite the commencement of a large northern hemisphere wheat harvest. Importers may look to buy aggressively as a hedge against the US corn crop falling over.

Razor thin US soybean stocks continue to dominate the global vegetable oil complex. With the cupboard bare in the US, importers will be forced to scour the globe for substitutes, which should support strong demand for European and Canadian rapeseed/canola over the next few months. European crops are almost ready for harvest and look good, while the Canadian crop is improving after an ordinary start.

Local crop improving

Back home, feedlot margins across the northern region are on the improve. A step-up in buying for the Japanese Obon holiday period has led to export beef values to Japan, plus weaker sorghum values have helped push margins back into the black.

Our local crop is improving, with scattered showers across the majority of cropping areas over the past fortnight. But growing season rainfall remains well below average in most regions and there are significant cropping areas that are off to an indifferent start. While the crop is reportedly looking okay, until we get a general fall of 50mm+, the crop remains at the mercy of the elements (hot and dry spring).

There is not enough downside risk and too much production risk to warrant any action at this stage.

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