Wednesday, November 2, 2011

The week that was in International Grain Markets...

All the noise this week was attributed to the wider macroeconomic news out of Europe and the resulting risk adverse nature of market participates.  Grain futures have held within the current range over the past week, with the resulting domestic prices dominated by wide fluctuations in currency movements. News that the EU had compromised on a deal with the Greek debit crisis, spurred speculative money back into commodities. However on the news the AUD had reached its highest level against the greenback for over 8 weeks, and the CAD for 14 years! Trimming upside in cash prices. However, since late last week the dollar has declined 5c.

After the EU pushed through its debt deal last week speculative activity resumed back in the futures market, but how long will the warm and fuzzy feeling last? The US is getting hammered from all corners from strong export competition, with silos around the world bursting full. Increasingly bearish price signals (global stocks getting bigger/favourable Sth American plantings) are becoming apparent. In addition, the IGC increased global wheat carryover for 2011-12 by 9mmt to 202mmt. The largest carryover projection in a decade!

The IGC raised their global production estimate by a whopping 10 mmt to 855 mmt, but US stocks still remain historically tight. Although corn is off recent highs, historically it is still at very high levels. Recent Australian sales of 500kt of feed wheat into China and 800kt sales into the Philippines over the marketing year are testament to this.

Egypt yesterday bought 180kt of Black Sea Origin wheat with the Russian wheat still $17/t cheaper then French and $18 then Argentine offers. Although the origin wasn’t a surprise, prices were up to $3 higher then last tender held late last week and was seen as supportive for the market.  Russian all grain exports have reached 3.8mmt last month, and are forecast at a record 11.5mmt so far in the marketing year (June – October). However, Vladimir Putin has endorsed that grain tariffs will be introduced after Russia exports hit 24-25mmt, to protect domestic reserves and quell potential future food inflation. So you would expect Australian wheat to fulfill this void with their back-to-back record crops.

US winter wheat crop conditions is 13% very poor-poor (-3%), 41% fair (+4%), 41% good (0%) and 5% excellent (-1%). Texas the number three-production state is still in the midst of major drought with 38% of the crop rated very poor – poor. 78% of the US corn crop is harvested; this is +13% higher then last week and well ahead of the long-term average. The Eastern Corn Belt is still struggling with the wet weather, with Ohio only 18% complete, 37% behind the 5-year average. An improving trend for harvest will occur in some of the wettest areas of the eastern Corn Belt this week, although harvest weather will not be ideal due to cloudy and cool conditions.

Slow export news and talk that Japan (who are the largest export destination of US corn) and other traditional importers are seeking alternative grains continue to add to the negative tone. However, ideas that the market is oversold and concerns for a lower yield and tighter ending stocks for next week's USDA production update helped to support. It has been reported that grower selling has increased in the Corn Belt, but still less then normal.  With record prices before harvest cash flow isn’t an issue, with grower ideas that the market will continue to rally from here.

Slow demand from China for US soybeans plus hefty supplies of South America beans combined with good prospects in South America for next years April harvest are all factors which have added to the recent long liquidation trend from speculators. Heavy rain ranging up to 50mm was recorded in southern Brazilian growing regions over the weekend, while this weeks forecast is dry, allowing farmers back into paddocks. 

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