Wednesday, January 25, 2012

Market remaining sensitive to short term weather forecasts

Over the last week, grain and oilseed prices have generally been fairly steady, shrugging off higher international futures as the rising dollar erodes full upside. Erratic Sth American weather continues to have the trade guessing the extent to which recent heat/dryness has ultimately impacted corn/soybean production. Few analysts expect corn Argi production to be anywhere near USDA's 26mmt estimate, forecasts are now ranging anywhere between 18 - 20mmt. This will be the lowest crop since 2008, when 15.5mmt was harvested. The market could continue to remain sensitive to short-term weather forecasts. But February is an important month to determine soybean and late season corn yields, with Feb weather may also turn out drier.

Whilst Nth America cropping regions continues to experience a dry and mild winter. US Great Plains winter wheat crops are mostly dormant now, but have been getting good precipitation in the last couple of weeks. However, conditions still remain dryer then usual. After an earlier mild start to winter, conditions have turned colder in the Canadian Prairies, getting down to -26˚C over the last couple of days. However the lack of snowfall has resulted in many regions (Sth Manitoba and Nth Saskatch) having a record dry winter.

2012 US corn plantings has been earmarked at 94.7 million acres, (+2.8ma from 2011). If average yields eventuate (160bpa) then a monster crop of 335mmt (allowing usual abandonment) could be on the cards. This would be +41mmt from 2010. However as we learn many times, large acreage is one thing, but getting final yield in the bin is an entirely different scenario! Ag Canada estimate ‘intended’ wheat acreage this year at 24.2ma (+12% from 2011). While the Canuck barley area is +21.5% to a record 7.9ma. Canola +4.6% to a record 19.76ma.

Recent snow coverage has help insulate Ukraine winter wheat crop and to alleviate some moisture stress. However, a quarter of the crop still needs to be sown in the spring due to 2011 dryness. The farm minister expects corn plantings to rise by 700k ha in 2012 (to 4.3m ha) compensating for lost winter wheat acreage.

Whilst rumors circulating that the Russians and Argentinean governments may soon toy with the idea of implementing export tariffs/bans to ensure domestic prices remain stable. This news shouldn’t have come to a surprise for many, as Putin was flaunting a tax ‘may’ be in implemented back in October. After shipping up to 3mmt a month in the middle of last year, Russian export dominance is finally losing some steam. From July - Jan, grain exports came in at 20mmt, and it won’t be too long until the country reaches its pledge to curb exports once it hits 23 - 25mmt.

Chinese 2011 wheat imports rose 2.5% to 1.25mmt, an estimated 563k was imported from Australia. China imported 570kt of corn in December; cumulative Jan-Dec imports hit 1.75mmt, +11.5% from 2010. While soybean imports were pegged at 52.64mmt, this compares to only 10.38mmt in 2001. Sth Korea bought another 225kt feed wheat, which brings feed wheat imports a kiss over 1mmt over the last 15 days. While conr imports are reaching 800kt of corn. In Australia for the first four months of the marketing year (Oct – Jan), 9.5mmt of grains/oilseeds/legumes has been exported. Wheat has dominated this at 6.4mmt and barley at 1.7mmt.

Our friends over at CWB in Winnipeg are busily reading the job-classified section of the local rag, as provisions are quickly being made in a post CWB era. This morning was the first time since the Second World War where milling wheat/durum was traded in Winnipeg. However with legal wrangling’s still surrounding the outcomes of the Canadian Wheat Board (CWB), volume was limited. Spring wheat volume last year was 18mmt across the Prairies and 11mmt in northern US, it be interesting to see which exchange (either ICE or MGEX) will be the dominant high protein in Nth America. 

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