Internationally all grain markets have moved higher for the week, with the biggest moves coming from corn and soybeans. However with near ideal growing conditions present across Australia, the full rise in futures hasn’t been reflected in new crop prices. APW multi-grade prices have only gained $8/t in WA and $4/t along the East Coast, while basis has declined $4 to +$14/t in WA and $8 to -$11/t for East coast prices.
Concerns with dry spots in the central US Midwest persist, with the bullish element of “what if” continues to drive markets higher amid fears on yield and further production cuts. The market is mindful that yield potential has been hurt by hot and dry weather in July, with the crop getting smaller now and not bigger. The trade has aggressively added risk premium back into prices amid crop uncertainties, a feature that helped offset the volatile movements of equity markets earlier in the week.
Bullish sentiment continues to swirl around the US wheat market, with talk of a smaller spring wheat crop, potential smaller winter wheat (HRW) crop next year due to drought combined with increased wheat feeding in stock rations at the expense of record corn prices. Exceptional drought continues to strangle cropping country in the southern plains, with the forecast dry for the next couple of weeks. Going forward these dry conditions will sway the market, as by mid Sept 20% of the crop should be planted. Although lower priced Russian wheat has been dominating international tenders of late, the price gap between Black sea and other countries offers has been narrowing. This has helped to support higher international prices. This is on the back of the International Grain Council forecasting the third largest wheat crop on record! The rise in production was mainly due to much better weather conditions in recent months in Russia, Ukraine and Kazakhstan. At the same time, however, the USDA is also expecting a rise of global usage.
Our colleagues at Pro Farmer USA have finished their Midwest crop tour, finalising 2011 US corn crop at 317mmt with an average yield 148 bushels per acre (ba). The latest USDA forecast was 153 ba, with total production at 328mmt. Pro Farmer believes USDA will eventually lower harvested acres for both corn and soybeans, but USDA’s August 1 harvested acreages were used in making these estimates. So further cuts would be on the cards. This creates an extreme stocks scenario and is why corn is currently sitting at record prices. This will be an additional boost for Australian feed grain exporters, who managed to muscle their way into traditional corn homes in Asia over the past year and this trend will set to continue.
Pro Farmer pegged 2011 US soybean crop at 84mmt; with an average yield of 41.8 pa. Latest USDA forecast was 41.4 ba, with production at 83.1mmt. However, yields could come in better then expected on the back of one of the most disease free bean crops the tour has seen in many years. On lower yield estimates soybeans have broken the previous seven-month chart resistance at 1400c, settling at its contract high.
Statistics Canada estimated 2011/12 Canadian canola production at a record 13.2 mmt up 11% from last year. This estimate was on the lower end of trade estimates who were expecting around 13.6 mmt. Canola has been trying to move lower, but keeps getting support from US soybeans. However with a bin-busting crop anticipated, strong grower selling should be just around the corner and this may have the potential to limit any further strong price gains. The next couple of weeks is forecast for minimal rainfall and frosts across the Prairies which will be welcome news, especially with harvesting and windrowing behind the eight ball in Alberta.