Monday, September 13, 2010

Absence of Russian supplies to keep market firm

Confirmation that Russian grain would be absent from export markets until late next year, ongoing difficulties with planting Russian new crop and lower corn supplies saw grain markets consolidate at higher levels this week.

Traders/analysts were expecting USDA to lower its US corn and soybean production estimates from last month. Corn supplies were reduced to about where expected, but the 50 million bu increase in projected 2010 US soybean production was a bit of a bearish surprise. US carryover estimates for corn, soybeans and wheat were lowered, though perhaps not as much as expected on beans.

Rather than an expected contraction, there was a slightly rise in projected global wheat carryout in this report relative to August. But the numbers look most bullish for the corn market as production and carryout were lowered. It would appear from this data that breaks in the corn market will remain well supported.

On wheat though an increase in global wheat carryout (up 3 MMT) and higher prices seems contradictory. Could we expect profit-taking on spec long positions in the wheat markets?

While there remains plenty of uncertainty, at least we were able to confirm one important fact this week. After a series of confusing reports, traders are now confident Russia’s grain export ban will remain in place until the country has a better idea of the size of the 2011 grain crop. Russian officials that were more than willing to talk, have confirmed that Russia’s grain export ban will remain in place at least until harvest 2011.

In fact, as the country’s sunflower harvest continues, there are even hints at an oilseed export ban... and more traditional importers are taking note of Russia’s unpredictable export policy. Azerbaijan Prime Minister said he wished his country had booked supplies from Argentina. As this tone spreads among traditional importers of Russian grain, look for global feed grain demand to improve.

Given this, talk that US corn yields could continue to decline will keep upward pressure on the bottom end of the grains complex. Black Sea feed grain exports stole market share from other suppliers over the past couple of years. This trend looks set to reverse in a big way in 2010/11, just at a time when global coarse grain supplies are tightening again.

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