Wednesday, February 1, 2012

Domestic prices continue to trade in narrow range


Not much fundamental news to sink your teeth into this week, South American weather continues with Argentina now getting lashed with regular rain, but it may be too late to salvage corn crops, but a boost to later maturing beans. More talk of the expected Russian wheat ban/tariff, continuing weather concerns and more optimistic news out of the EU budget agreement helped to provide some bullish mentality. The US Federal Reserve intends to keep US interest rates unchanged near zero through 2014, which made the greenback sharply lower and supported agricultural futures overall. The AUD rallied on the news, and has now gained nearly 10c in two months against the greenback. While the AUD against the loonie has been trading at the highest levels since 1997.

Domestic prices have been flat over the last couple of months. APW prices have been fairly stable struggling to reach pre harvest price zone. It seems the high demand for feed barley has waned, with prices slowly creeping back $4 over the last week, after slowly rallying $16 since the start of December.  The extreme wet weather in QLD/Nth NSW was more focused on coastal regions (Coolangatta 400mm), while inland key sorghum growing regions ranging from CQ to the Downs and Liverpool Plains received between 40 -70mm over the last week Sorghum crop losses will not be large but may change planting intentions of CQ growers. Depending on the intensity and duration of the rain, some growers who have sprayed out crops are expressing some quality concerns.

Continued concerns of winterkill damage for parts of the Black Sea region and parts of Eastern Europe help to support gains over the week. Temperatures in the main winter wheat regions in southern Russia got to -17˚C and -24˚C in northern Volga regions. The forecast over the next week is predicting temps will be -15˚C below average. These regions have received little snow of late, raising the risk of winterkill.

Egypt has rejected a cargo of Kazak wheat, and switched the remaining three cargos to Russian origin as “unauthorised seeds’ were found. It will place further pressure on Russian logistics. Renewed fears that the Russki’s will be phasing in export tariffs, also helped the bullish momentum.  Why is this coming to a shock, everyone knew these tariffs/ban would be implemented when they were first mooted this mid last year…!

The US southern plains will continue to see dry conditions over the next week, although winter wheat crops are still dormant forecast warmer weather might induce an early emergence. Topsoil will likely become drier, reversing the trend of November and December when soil conditions were improving.  After the previous weeks cold snap, warmer weather (+7˚C above average) has returned to the Canadian Prairies with rainfall 40% below normal over winter in some key spring wheat regions.

The latest COT report showed that fund traders hold a larger than expected net short position. Talk that the hefty (near record) net short position from fund traders might spark aggressive short covering over the near-term helped to support. This may have helped to limit the selling.

Deteriorating conditions in major export countries, helping boost US exports has been the positive news of late. Despite an increase in US farmer selling, cash-market levels have remained strong, an indication that supply/demand fundamentals are tight at the moment. USDA ending stocks estimate for the 2011/12 season is still at a historically low 21.48mmt (lowest since 1995). Forecast higher usage (exports, ethanol, feed) even at current high prices, is likely to cut into an already tight balance sheet. Corn basis particular in export channels that service the Gulf of Mexico were weaker, but still historically strong. Last week basis was +100c/bu higher in some locations.

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