Monday, January 19, 2009

Sth American concerns prop-up grain markets for now

International grain markets spent most of the week trying to recover from a shocking USDA corn report that reduced demand and lifted stock projections to above last year’s levels. The only upside in these reports was another cut in US winter wheat plantings, but this is a double edged sword with lower wheat plantings freeing up more ground for summer crops (corn and beans).

Soybeans are leading the charge fuelled by the dual drivers of strong Chinese demand and declining Sth American crop conditions. Towards the end of last week the USDA reported soybean US export sales for the latest week more than double trade expectations (1.362 mmt) with a large chunk of that going to China. With Sth American crops in trouble, this spells more export demand for US soybeans. China continues to talk about lifting domestic prices – higher Chinese prices should support imports. With canola values competitive with beans, canola is also picking up its fair share of exports. Canada reported fresh sales into Pakistan and China and very cold weather has stalled Canadian farmer deliveries – both aiding to tighten the export pipeline.

But the big news late in the week was a report from respected US ProFarmer Sth American expert Dr Michael Cordonnier that slashed Brazilian corn and soybean production estimates. He cut his soybean production estimate for the country by 3mmt –now projected at 55mmt. He said damage to the soybeans in Parana was ‘irreversible’ and rated most of the Parana soybean quality as ‘poor to very poor...some of the worst soybeans I have ever seen in Brazil.’ Cordonnier's report did not address Argentina, where arguably more dire conditions exist – data on the Argentine crop is being compiled, but conditions there have deteriorated sharply.

The market is taking this seriously as it ignored a further plunge in oil values and more damning economic news to recover the early week losses. But if the Sth American crops hang on, estimates that US bean plantings may rise another 5m acres above last year’s record may stem buying enthusiasm.

Corn and wheat really rallied with soybeans but there was little independent fundamental strength in either and values are below a week ago. Problems with Sth America corn crops may send some business to the US, but there looks like there is heaps of corn and demand is slowing. Wheat is pretty much the same, although the milling wheat balance sheet is still tight and values will be responsive to nth hemisphere spring plantings and crop conditions. Cold conditions throughout the nth hemisphere haven’t done much damage so far (first real winter since 2005/06 they reckon – all the talk of doing something about global warming must be working).

Local values continue to edge higher supported by a weakening $A, slow grower selling and local trade and export shorts on nearby positions. The main activity was in the Brisbane port zone where growers are selling to free up room to store sorghum. The trade continues to actively seek old crop sorghum to meet shipping commitments. New crop sorghum values are being supported by crop concerns. Very early harvest reports are indicating high screenings and crops to the south are starting to flag under very hot conditions which will compromise yields without finishing rain in the next month.

Further south, feed grain values firmed on the realization there may not be as much feed wheat around as first thought. Growers are very reluctant to sell at current values. The further south you move, the more tightly grain is being held. The premium for grain is southern port zones is widening again as the trade and domestic end users look to cover Jan/Feb positions in a vacuum of grower selling. This has started to see sorghum priced more aggressively into southern markets. In contrast, WA growers are starting to price more grain and this has narrowed the WA premium.

Trade has occurred at $255/t delivered Melbourne for Feb/March and in the low $250/t’s into the Goulburn Valley for the same period. The current wheat values are pushing consumers into the cheaper feed grains of sorghum and barley. Sellers on the ‘long haul’ from the north are reluctant to go too far out due to the freight risk and as freight values seem to have increased over the last week.
Local canola values are being supported by higher international values and reluctant grower selling, particularly on the east coast.

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