Monday, September 1, 2008

Markets garner some support

Grain markets garnered support last week from concerns that Hurricane (Cyclone?) Gustav may damage US oil supplies. Corn and beans also gained support from nagging thoughts that the USDA is overestimating yields. Many expect that a very dry August across the US Midwest may break the back of crops that have been struggling all year from a disastrous start. Growers are telling US ProFarmer that it has the trends right but it still has yields too high (they are currently estimating corn yields as the second highest ever).

Wheat and canola down
In contrast to corn and beans, wheat and canola values were significantly weaker this week. An improvement in conditions across major southern hemisphere producers Australia and Argentina, renewed strength in the $US, and thoughts that US wheat was overvalued sent CBOT wheat futures lower. Without ongoing support from corn and beans, CBOT wheat futures will struggle to hold at current levels. Growers should look to take some price cover as yields shore up.

Only a further fall in the $A (to a four-month low) and stronger basis levels stopped heavy wheat futures losses from flowing into local values. Lower local inflation data has cleared the way for the RBA to opt for the larger 50 basis point cut this week to relieve the pain of local debt holders. That said, we expect the $A will remain a supportive influence in the lead-up to harvest.

Canola was hammered (unjustifiably in our view) by an adjustment to last season’s Canadian production estimate. Canola could be catapulted higher if important mid-September data releases indicate lower US corn or bean yields, or if the revision to the old season Canadian canola crop estimates doesn’t show up in larger canola stocks.

Much needed rainfall
Over the week, rain fell across most areas where it was desperately needed. We expect that the rain has negated the need for us to take the knife to our production estimates when we update them over the next couple of weeks.

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