Will Wheat Export Bans persist?

When Russia announced that it was banning wheat exports on 1st July last year after drought decimated up to a third of the crop, it sent wheat markets into the stratosphere. Along with sharply higher global prices, Australia wheat exports rose sharply, as buyers turned to alternate origins in the face of poor supplies from drought stricken Russia (the previous year thirds largest exporter).

International buyers rushed to cover positions, when concerns began to surface that the drought had severely hurt yields in Russia. Australian and other major exporting countries wheat volumes surged. Australia's exports from August 2010 – January 2011 were 8.3mmt (2.1mmt higher then the same time last year). Whilst US wheat shipments from June 2010 - February 2011 stood at 23.6 mmt, up by 6.5 mmt compared to the previous year.

Now with India (current wheat harvest estimated at 84mmt), Russia (90mmt) and Pakistan (25mmt) forecast to have bumber crops this year, will an export ban be continued? Will these countries now be aggressively targeting Southeast Asian millers, that Australian wheat has previously been finding a home over the last nine months? These governments faced with huge grain stockpiles, strengthening global prices and prospects of record output would be tempted to jump into export markets. However these countries will be thinking twice before opening the floodgates for exports of wheat.

With inflation a major issues not only in the sub continent but also across the globe, these countries will tread cautiously and probably only allow a trickle of grain out. In order to bring down domestic prices, these countries should put a ban on export of wheat and the ban should remain until the food prices for basic food items are brought at a level where the average family can afford. As soon as the ban comes into place, an immediate reduction in the prices of all consumer-based products will become apparent.

While off course it will result in a temporary loss of export profits and foreign revenues, it will immediately befit the most needy of the population. Imposing a ban will immediately release the pressure on the average family. Meanwhile, the government can concentrate on creating a long-term price mechanism apparatus and devise ways of enforcing this to ensure that long term prices do not spiral out of control in the future.

Keeping an eye on the heavens

As we roll into mid April, the international trade is closely eyeing the heavens for any more potential bullish news that could send the markets higher. Historically the April - June window offers the most volatile price moments; be it too much rain in Northern Hemisphere spring plantings hampering sowing or too little rain in emerging winter wheat/rapeseed regions potentially downgrading crops. If there are weather related concerns over the next couple of months this could be an opportunity to sell any old or new crop grain if you missed the previous highs set in February.

The US winter wheat (HRW) crop really has been belted around like the Gold Coast Suns since it was sown last year in dry paddocks. Dry conditions have been recently exacerbated by warm hot winds drying out the crop. 32% of HRW regions are rated poor to very poor, with the key producing state of Kansas fairing the worst. No relief in rain is on the forecast , but cooler weather is forecast.

With record and near records snow depths occurring across the Canadian prairies over the winter, there has been question marks raised that the delayed snow melt (and subsequent flooding) will severely delaying their spring planting. Although some pockets in Alberta and western Saskatchewan snow cover has gone, there is a bias for wet and cool weather to prevail for at least this month, keeping growers out of the paddocks.

After some saving rain at end of February, Chinese winter wheat regions have remained dry since and are forecast to keep this bias. Significant rain will be needed later this month to prevent dryness from threatening production potentials. There is still plenty of time for significant rain to fall, but it will not take long for serious moisture stress to evolve when temperatures turn warmer.

Showers last week in Europe improved rapeseed and winter wheat in France, Germany, Poland and Ukraine (UK missed out, still too dry). March was a very dry month in Western Europe, and more rain is needed with warm weather becoming the norm. Ukraine is still very dry, whilst further east in the southern Volga region of Russia temperatures are warming up. Rapid snowmelt is currently making conditions very wet, with paddocks inaccessible.

Brazil soybean harvesting virtually done in Mato Grosso (main state), however question marks over quality will continue. March was extremely wet, 150% of normal rainfall Center West area. Rio Grande do Sul soybeans hit with very heavy rain recently, more is expected.

Argentina got heavy rain, heart of the grain belt soybeans may still benefit, pod filling winding down as harvesting begins. Buenos Aires needs rain for wheat planting which like Australia will commence early next month. The forecast is favourably wet in southern key wheat area.

Corn eclipses June 2008 High

Markets continue to gain momentum with wheat +65 for the week, corn +89, beans +36, canola +14. Corn prices are now at their highest price since June ’08. I actually remember this time well, I was in Indian Kashmir at the time, and a pharmacist asked me what agricultural commodities are going to do, “I told him get the hell out!” it eventually spiralled down to 320 by the end of the year!.

As highlighted in last week’s USDA stocks report, corn usage is not slowing down; the previous high prices are not choking off demand. Even with prices going down to 620c/bu a couple of weeks ago, there was a renewed surge in demand for corn. It is staggering to think that last years US crop was the third largest on record! Demand from the domestic ethanol industry and outside countries is continually getting bigger. At this ‘early’ stage US growers will need to plant a lot more then the anticipated 4.5% increase (total 92 million acres) to guarantee adequate stocks buffer (projected to reach a 15-year low of 675million bushels by the end of the marketing year on Aug. 31)

Which leads us to the global weather picture. I was over in Winnipeg over Christmas time, and they were talking about the potential spring flooding back then. Since that time, conditions have deteriorated with a late wet winter still prevailing over the Western prairies and Red river catchment. Also another large dump of snow occurred over the weekend (Profarmer Canada estimate another 30 cm of snow over key growing areas of Saskatchewan on the weekend). With an increase in projected corn acreage in the Dakotas (which will account for 1/3 of the increase in intended corn plantings), these areas may run into wet sowing conditions in the near term.

It is good to see some fundamental market direction back in the wheat market. Weather will be the daily focus for the next couple of weeks, with high temperatures (30+ in Northern Texas and central Kansas) last weekend in HRW regions again knocking back crop conditions. The USDA in their latest crop report rated 32% of the crop as poor to very poor, with the bulk of the poorer regions in key growing areas. Actually this was actually released after the market closed, so I would expect the electronic market to be trading higher today.

It will be interesting to see what unfolds in the next couple of weeks, but for the time being it seems wet cold weather will prevail in the north of the States/Canada (hampering sowing) and very dry to hot in the south (severely reducing HRW yields). With WA still very dry and reports that northern Europe and China (remember China!!) is getting low on moisture there is enough potential bullish news to keep the market well bid over the next couple of weeks.

USDA Stocks & Planting Report confirm tight corn stocks

Markets didn’t disappoint after last Friday morning release of USDA stocks and acreage report. Since that time wheat futures have shoot up by A$ 15/t, corn $30/t and soybeans $12/. So what is the acreage report? This is just an initial estimate on what US farmers intend to plant leading into their spring. So if intended acreage is low enough, the market has to move higher to try and capture more acreage from other crops to maintain current demand and usage.

Remember this is only an intention! Sowing doesn’t usually kick off in key regions until late April/May. With cool and wet conditions this spring already raising planting concerns in the US Midwest and especially in the Northern US Plains states and extending well into the eastern half of the Canadian Prairies, there may be some gap between acres "intended" and those that are "actually" seeded.

Wheat had the more bearish sentiment (US carryout stocks will remain historically high), and although it will follow corn in the short term, it is going to need to find added support from concerns about the new-crop US wheat situation. The bulls will focus on the dry April-May Central Plains outlook.

Bean stocks are still tight, although ‘intended’ acreage is expected to drop this year (-1%), this will still be the third largest crop sown on record! This just reinforces the point that these big acreage (and high prices) are needed constantly to meet new export demand, there is little room for error.

With corn recently touching 2 ½ year highs, US growers intend to plant 5% more corn this year on expectations of better returns. The corn stocks data is the bullish factor for the future. And while the acreage number is a little higher than expected, uncertainties of the coming seeding/growing seeding ahead is likely to maintain support under the market.

Further bullish sentiment was reinforced by the stocks report with corn stocks at the bottom end of trade estimates and 35% lower then the last quarterly stocks report in December. The stocks total implies strong quarterly use, with the preceding high prices not choking off demand and rationing supply (which the market needs to cool prices).

So far these higher international prices have not equated to domestic prices. Basis (which has been at a historically high level all year) has started to decline as local demand dries up; buyers are stating that they have adequate stocks for the short term. Also a record 550,000/t of wheat/barley export commitments slipped from March to April, the shipping stem is getting increasingly congested (limiting new short term demand).