Grain markets seem to have reverted to following gyrations in outside markets, now that most nearby supply and demand factors (Russian export ban, lower corn yields, milling wheat issues) have been hard coded into current price levels.
When the macro factors are at play, the impact of movements in international grain prices are neutralized by offsetting movements in the $A. So making grain pricing decisions based on how the macro factors will play out is a bit of a waste of time. It is the S&D shocks that cause most of the large movement in the $A value of your grain.
So looking ahead we feel that there are a couple of sleepers that could affect the global S&D balance and influence the value of your grain in the months leading up to harvest.
The first is the production situation in WA. One of our team has just completed a crop tour of WA and can’t put the wheat crop at much above 4-4.5mmt. This will have ramifications for WA values as growers wash out of forward contracts and importers battle for the scarce supplies of WA grain. This should continue to assist WA basis and support WA grain prices in the lead-up to harvest.
Another factor with major implications for global grain supplies in the medium-term are Russian new crop plantings. Russian winter grain plantings will fall short of last year’s levels. The Russia’s Ministry of Agriculture was targeting winter grain seedings of 39-42 million acres, but this has now been adjusted to 36.75 million acres.
Recent rains have improved conditions, but more rain is needed as growers try to wrap up plantings by late October. Last year, Russia pushed winter grain seedings to 44.1 million acres, which was about 7.35 million acres above the five-year average.
The next sleeper we can identify is sth American planting conditions. While it is not unusual to be hot and dry ahead of summer crop planting (nth Brazil, particularly has distinct seasons, not unlike our top-end), this year it has been exceptionally dry and hot. Planting delays seem inevitable and current production estimates are at the top end of possible outcomes.
Monday, September 27, 2010
Monday, September 20, 2010
Canola price prospects receive a boost
A killing frost across both China and Canada is likely to lead to lower production and quality issues in oilseed crops. This should aid in further boosting Australian canola export prospects.
Problems with Chinese and Canadian crops come at a time when the global oilseed complex is being hit with production nicks across a variety of crops. It is thought Russia’s sunseed and Ukraine rapeseed production will be further reduced against current USDA estimates, whilst cottonseed production will be cut in both China and Pakistan.
Recently, Pakistan has been fairly aggressive purchasing canola, to supplement the reduction in their 10/11 cottonseed crush. The highly substitutable nature of most vegetable oils means that they are part of one big complex. Losses in one oilseed have an almost direct influence on the rest of the complex.
Losses in non-soybean crops this year will place greater pressure on soybean production across the US and Sth America to replace these and meet growing global demand for oilseeds.
Early yield indications suggest the US crop is on target for record production, but soon attention will turn to nth hemisphere and sth hemisphere plantings.
Early indications are that strong wheat and barley margins combined with below optimal rapeseed plantings conditions (too wet in some areas and too dry in others) will lead to a fall in European rapeseed plantings of up to 10%.
In sth America, conditions remain too dry and longer-term weather forecasts are suggesting below average rainfall for the early stages of the summer growing season.
Worries about future supplies will likely keep oilseed prices well supported until a large sth American plant is secured and provided the macro environment holds up (oil and equity prices).
Problems with Chinese and Canadian crops come at a time when the global oilseed complex is being hit with production nicks across a variety of crops. It is thought Russia’s sunseed and Ukraine rapeseed production will be further reduced against current USDA estimates, whilst cottonseed production will be cut in both China and Pakistan.
Recently, Pakistan has been fairly aggressive purchasing canola, to supplement the reduction in their 10/11 cottonseed crush. The highly substitutable nature of most vegetable oils means that they are part of one big complex. Losses in one oilseed have an almost direct influence on the rest of the complex.
Losses in non-soybean crops this year will place greater pressure on soybean production across the US and Sth America to replace these and meet growing global demand for oilseeds.
Early yield indications suggest the US crop is on target for record production, but soon attention will turn to nth hemisphere and sth hemisphere plantings.
Early indications are that strong wheat and barley margins combined with below optimal rapeseed plantings conditions (too wet in some areas and too dry in others) will lead to a fall in European rapeseed plantings of up to 10%.
In sth America, conditions remain too dry and longer-term weather forecasts are suggesting below average rainfall for the early stages of the summer growing season.
Worries about future supplies will likely keep oilseed prices well supported until a large sth American plant is secured and provided the macro environment holds up (oil and equity prices).
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.
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.
Tuesday, September 7, 2010
US Dollar & Not Fundametnals maybe driving Grain Prices
Global grain markets kicked again towards the end of last week on; confirmation by Putin that Russia would not be lifting its grain export ban until after next year’s harvest; Informa economics slashed its estimates of US corn yields; good news on US grain exports; increased speculative fund interest in grains after an easing in the $US.
We have our doubts about whether the three former factors will be enough to sustain current grain price levels without the later….and we have no idea whether the later factor will be sustained. What! I here you ask? Well, unless the $US keeps easing I don’t expect global grain values will keep improving.
On the Russian export ban, the is fully what I expected anyway after early results from the Russian harvest started to filter through and confirm worst-case production estimates. To date they have harvested around 43mmt, down 34% on the same time last year. When they started talking about importing…the picture was pretty clear. We are still not sure why the market reacted to this as I viewed this as factored into prices.
US ProFarmer is very skeptical about latest corn yield estimates from Informa. Informa’s 'mostly likely final' corn yield estimate is reportedly 158.5 bu/ac. US ProFarmer reckons this was a shockingly small figure and one that it didn’t see reflected when on its US Crop Tour. US ProFarmer is expecting average US corn yields to be 162-165bu/ac, much closer to the USDA current estimate. I am not sure why the trade puts so much emphasis on what Informa says, in my opinion and experience US ProFarmer makes MUCH better estimates.
I also think we need to be careful about all the excitement surrounding US exports. The USDA already has them penciled in for a pretty big lift in exports. Big enough to have many of the trade talking about the potential for these volumes to choke up grain export channels. While the jury is still out, we suspect current feverish buying could be linked to grain importers wanting to extend coverage after Russian banned exports and before the US runs into logistical problems once harvesting of massive US corn and soybean crops commences in the next month.
We have our doubts about whether the three former factors will be enough to sustain current grain price levels without the later….and we have no idea whether the later factor will be sustained. What! I here you ask? Well, unless the $US keeps easing I don’t expect global grain values will keep improving.
On the Russian export ban, the is fully what I expected anyway after early results from the Russian harvest started to filter through and confirm worst-case production estimates. To date they have harvested around 43mmt, down 34% on the same time last year. When they started talking about importing…the picture was pretty clear. We are still not sure why the market reacted to this as I viewed this as factored into prices.
US ProFarmer is very skeptical about latest corn yield estimates from Informa. Informa’s 'mostly likely final' corn yield estimate is reportedly 158.5 bu/ac. US ProFarmer reckons this was a shockingly small figure and one that it didn’t see reflected when on its US Crop Tour. US ProFarmer is expecting average US corn yields to be 162-165bu/ac, much closer to the USDA current estimate. I am not sure why the trade puts so much emphasis on what Informa says, in my opinion and experience US ProFarmer makes MUCH better estimates.
I also think we need to be careful about all the excitement surrounding US exports. The USDA already has them penciled in for a pretty big lift in exports. Big enough to have many of the trade talking about the potential for these volumes to choke up grain export channels. While the jury is still out, we suspect current feverish buying could be linked to grain importers wanting to extend coverage after Russian banned exports and before the US runs into logistical problems once harvesting of massive US corn and soybean crops commences in the next month.
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