Tuesday, March 20, 2012

Warm North American weather kickstarts early corn sowing

After last weeks strong build up, speculative selling emerged to start this week on lack of Chinese purchases; poor export sales and current favourable US planting conditions. However lingering concerns still persist, with many now saying that global production won't rebound from last seasons, and may now actually fall in 2012. Domestically, canola prices for both old and new crop continue to outperform other grades. Compared to 12/13 wheat and barley, where prices have remained relatively flat over the last four months, canola has gained $35 (WA +$46) over the Jan average.

The main catalyst of last weeks price hikes was Chinese demand. These Chinese whispers continue to do the rounds, with domestic high prices (330c over CBOT futures) flying in the dace of forecast ending stocks at 57mmt, which are the highest in eight years. Future Chinese demand has the ability to explode the market. While increasingly scarce US old crop supplies has got basis strengthening in the Midwest (+17c) and the Gulf (+64c). In an effort to draw out more supplies, the old crop (May) and new crop (Dec) spread is now at a 91c inverse, compared to 65c in late February.

Talk of the overbought condition of the market after the surge last week (+20c) plus talk that winter wheat crops are still improving in most areas of the plains helped to pressure. Weekend rain with more forecast for the US southern Plains will continue to improve winter wheat prospects. With the warmer start to spring, the HRW crop is estimated to be 3-4 weeks ahead of normal. Although there is a high chance that a late spring frost will not happen, it still may and this leaves the rapidly developing US winter wheat susceptible and thus futures will reflect this ongoing uncertainty.

Another unusually warm week of weather lies ahead for most of the US Midwest. Temperatures are forecast as much as 17˚C above average for this time of year, with temps nudging mid 20’s. Soil temperatures are on the rise, and in some regions warm enough to germinate corn. With one of the biggest yield constraints on corn being a late sowing, current conditions are ideal to maximize potential. Although rainfall over the last couple of weeks has been highly beneficial, subsoil moisture in the Midwest is still dry after one of the driest winters on record, highlighting the need for constant rain for the earlier planted crop.

Similar warm conditions are also in the Canadian Prairies, and although these dry conditions experienced over the winter/early spring is being priced in the market, it’ll only take a good rain to restore the moisture balance. Canola will be the darling of the Prairies this year, with a record acreage program a given. Old crop canola futures continue to sharply outperform new crop (+$42/t) as concerns continue to mount about tightening stock, even after last years record crop of 14.16mmt.   Canuck exports are running 1.4mmt higher then the same time last year at 5.9mmt, with ending July stocks forecast anywhere between 600 - 800kt, a fifteen year low.

Whilst ongoing declines in Sth America crop and thoughts that it’ll spark increased demand for US origin was supportive all last week. These factors have held South America values up high enough so that US soybeans are still competitive when traditionally Sth American bean are at their most competitive. Beans need to hold or even add to the recent gains relative to corn in order to avoid losing acres due to ideal planting weather in the forecast continues to support. Both bean/corn markets are heavily overbought; this speculative volume could soon be a burden if more EU debt fear spooks the markets again (regardless of the fundamentals!).

Across the Atlantic, spring rainfall continues to be below average, with Feb rainfall 25% of average further exacerbating the issue. The Iberian Peninsula and Northern Africa (which is a large importer of wheat) are of particular concern. Further east, Russian Volga (-20˚C), Kazakhstan (-15˚C) and China (-10˚C) are still experiencing bitter cold conditions which will hamper early sowing dates for corn/spring wheat. While all the noise that was made about Russian export bans, the government has come out and announced they will not impose any grain export restrictions in 2011/12 (July – June), with exports forecast at 27mmt.

1 comment:

sydney weather said...

There were two reports last week about the weather that just made me smile. I'm re-telling them here in an effort to provide you with something to smile (or smirk) about this summer.