Last week, agricultural commodities markets were in a world of hurt, with the three main international grades of wheat, corn and soybeans all experiencing their lowest prices for more then twelve months. Wheat futures had been at their lowest levels since early 2010, just before markets shot up on the back of the Russian drought and subsequent export ban. So far in Dec, wheat has increased 7c; this follows three months of previous price declines -50c (Nov), -26c (Oct) and -136c (Sept). With the last monthly increase experienced in Aug (+55c).
However since these lows late last week, market have rallied. With the trade pricing in weather risks in South America and the buying back of previous sold positions supporting grain markets. Funds still hold a sizable short in CBOT wheat, which may continue to limit downside potential, even though world stocks are seen at 10-year highs, and close to the highest on record.
APW cash basis (versus CBOT Mar) continues to erode in value as grower selling and harvest pressures prices domestic cash prices further. Currently at contract lows East Coast -$23 (after averaging $0 in Oct) and West Coast +$12 (after averaging $21 in October). While canola basis is -$14 after averaging $30 in October.
The Russian harvest has bounced back from last year with output at 92mmt, (+31mmt from 2010). Exports of 25mmt are still expected, of which a staggering 17.5mmt has already been shipped since July. This makes March next year the time when their “self-imposed” limit of 25mm is reached. Whilst the Ukraine export program has concentrated its efforts more on shifting it's record corn crop, with their first wheat into Egypt not landing until the second half January. Kazakhstan is busy shifting its record wheat crop overland to southern markets, while sea exports have been minimal; waiting for some spare capacity to become available at Black Sea ports.
Hot and dry weather continues to threaten corn pollination period for the next several weeks in South America. Over the previous two months, Brazilian growing regions continue to be dry with rainfall 20-40% of normal. Only previous adequate subsoil moisture has carried the crop this far. Weekly forecast calls for more dry conditions in the south.
Hot (+40˚C) and dry conditions in the main central Argentine bean crops are persisting, but it seems some wetter weather is forecast tonight (20 - 30mm) in some isolated regions, which will bring some short-term relief. However there very little forecast on the radar for the rest of 2011, with hot conditions quickly returning making crops vulnerable to water stress.
As has been mentioned many times, the earlier record bullish crop estimates for Sth America were always going to come under pressure, be in weather and subsequent production risk. You have a feeling that a maybe a large move could be imminent over the next couple of weeks.
Ottawa passed the Marketing Freedom for Farmers Act on Friday, which sparked the buying of the deferred canola futures in hopes of preventing prairie growers from switching to wheat and barley acres this spring at the expense of canola. The marketing freedom Act allows Canadian origin wheat, durum and barley growers to sell those commodities to other outlets other than the Canadian Wheat Board. Although early days, rain across the Prairies since Sept have been very low with some regions experiencing a record dry.
Next year the EU is predicting a wheat crop of 133.5mmt (+4%), combined with the slow export pace in 2011 suggests a plentiful supply of exportable surplus wheat for first half of 2012. The Argentinian wheat harvest is roughly 70% in the bin, with some conflicting reports being circulated about projected tonnage. The government has revised its estimate lower to 12mmt. This compares to 13.6mmt form the Buenos Aires Grain Exchange and 14.5mmt from the USDA. Rainfall in key southern regions over the lasts five months have been at 57% of normal, I would be suggesting the lower end of these estimates.
US winter wheat plantings have been forecast at 39.8 million acres, down 813k from last year. As dry conditions in the main winter wheat regions of the US southern plains reduce plantings. Widespread rain/snow fell overnight with highest amounts of 60mm being recorded in eastern Kansas, while widespread rain of 15mm was common. Temperatures are still warm enough to stimulate growth, with snow coverage protecting emerging crop from high winds.
Although world grain stocks are nearing record highs (208mmt), they have too just to buffer against burgeoning demand. Take India for example, the government has announced they’ll need a further 20-25mmt over the next five years just to keep up with rising demand!