Wednesday, May 2, 2012

Global Grain Summary


It’s a tale of two seasons in the US, drum tight old crop stocks pushing spot futures higher, whilst “anticipated” record yields drive new crop lower. High temperatures in parts of Ukraine/Kazakh, whilst the southern US winter wheat swelters through 40˚C was enough to sway some bullish momentum over the week. The US winter wheat crop has gone from strength to strength since winter dormancy, so it’ll be interesting what will happen if some weather scares emerge.  Whilst burgeoning Chinese demand for both beans and corn continue to stoke the fires. Since last Monday China has purchased 2.8mmt of US corn, of this 700kt old crop and 2.1kt new crop.

Scattered rain was received over the southern US plains, with temperatures will be very warm for the coming week. Warm and wet weather for much of the plains and Midwest is seen as good for crop development at this time of the year.  France and England wet weather bias continues, with soaking rainfall (10 – 39mm) over the weekend. After a dry Feb/March allowing crop prospects are starting to stabilise. Whilst in Germany and much of Eastern Europe conditions continue to be dry. The USDA attaché in Romania said that widespread damage to winter rapeseed crop will see an increase in corn acres this spring. Get used to this theme, which will be replicated in many parts of Eastern Europe. EU rapeseed crop is now forecast at just 17.6mmt. That would be almost 8% down on last year and represents a six year low.

Example of the extent of the European spring frosts a couple of months ago, with 29% of Poland's winter crop dead according to the local government. That land will be resown mostly with spring barley and corn. Net drying is expected to continue over the next two weeks in the lower Russian Volga River Basin and neighboring areas from eastern Ukraine and south-central Russia into Kazakhstan. Temperatures are forecast to continue to be warmer then average, accelerating the net drying effect.

US winter wheat crop continues to be in great shape and maturing vigorously. 64% of the crop is rated good – excellent. This compares to last year when only 34% was rated good to excellent and 41% very poor to poor. Whilst in the north 74% of spring wheat has been planted, and well ahead of the five-year average of 32%. Over the border in the Canadian prairies no wheat has yet been planted. Total US planted corn acreage continues to surge ahead at 53%, this is 25% ahead of last week! Key state of Illinois is at 79% (+20%), while last weeks warm weather allowed Iowa to catch up at 50% (+41%). Total crop planted is 26% ahead of the five-year average.

Soybean futures continue to rally hard, with that old chestnut (rumored Chinese purchases) helping to fuel the bullish momentum, combined with shrinking Argentinean crop prospects keep shrinking. New estimates now around the 40mmt mark. This compares to the USDA forecast earlier this month of 45mmt! Looking back a couple of years ago to last South American drought reduced crop in 08/09. The USDA cut 5mmt from the Argentinean crop (34mmt) in the May WASDE report, and then a further 2mmt in the final crop estimate!

Usually customers flock to Sth America for the cheapest beans this time of year, but with Argi crop shrinking and shipping stem full in Brazil, customers have only once place to go, the US. Beans are at a record overbought position, because of these underlying bullish fundamentals that have been in play since Feb. And there hasn’t even been a weather scare in the US yet!

Despite an unusually warm March, spring sowing across the Canadian Prairies are close to normal. It did look like an unusually early spring melt would allow farmers to start early, but a return to more typical weather didn’t allow it. This time of year, wide swings in temperatures across Prairies; Tues for instance had highs of 30˚C whilst yesterday only reached 15˚C and this compares to just above freezing last week! Frist big rainfall of the year across the Prairies, with up to 33mm in eastern Alberta and southwestern Saskatch.

Exporters and domestic crushers continue to chip away at the ever-tightening old crop Canadian canola supplies. The need to ration demand provided some negatively for the May/July contracts. Whilst a slowdown in new crop hedging as growers concentrate on spring sowing, also generated some support.

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