Wednesday, May 9, 2012

Lower dollar helps old crop prices against declines

Tight old crop stocks continue to prop up spot futures, while idle growing conditions erode new crop gains. This week will be an updated USDA supply and demand and first look at 12/13 production. These reports (along with weekly crop progress) will likely supply the market with more bearish price data. But on price dips foreign buyers have emerged from the shadows to support futures sinking lower. Domestic Australian old crop values have shown price resilience in the face of lower international futures, largely in part to falling Aussie Dollar. Prices are at a seven-month low after slumping 6.54c since March, with at current futures value represents a gain of $14.

Internationally all the action has been in corn and beans, with the market concerned about rationing of old crop. US weekly corn exports last week came in at the highest since 1991 (3.4mmt)! The US may have a record crop bringing lower prices, but getting there will be volatile and at some point we will likely see higher prices before lower prices are again reached. But at the moment with sowing at a rapid pace, corn should mature before the height of the US summer, which decimated yields last year. Will strong US exports last, short term yes, but remember that the South American second corn crop (planted on bean stubble) acreage is much higher. These fresh supplies will be hitting the market come June/July, demand could soon switch there.
A monster winter wheat crop is looking more and more likely in the US southern Plains. The Kansas wheat tour has wrapped up, with an impressive 49.1 bpa (3.3t/ha) yield prediction. That is 0.7t/ha better than the three-year average. This reassures the trade that the key US wheat state will lead the way for a bumper harvest in 2012. And more importantly four weeks ahead of normal maturity, meaning an early harvest and less risk of erratic weather at harvest.

With India on the tail end of a bumper harvest, reports are surfacing that the government is looking at the possibility of exporting as much as 10mmt to ease storage pressure. Although India is prone to come out and boost these claims, the reality will only be a couple million tonnes exported at most. And I’m sure customers won’t get new crop, rather inferior old crop where the weevils have already gotten too!

Having reported soybean sales to unknown/China every day last week, and a further 375kt this week, couldn’t get the bullish blood running. Despite beans seeming to have the most upside potential, short-term bullish momentum could be curtailed ahead of this weeks USDA S&D report, given the heavy fund length that exists. Nonetheless the report is expected to show a significant tightening of 11/12 ending stocks due to higher exports and increasing crush. South American crop has still not stabilised, we may not get a handle of final tonnage for a couple more months.

Bullish data released by Canadian government on Tuesday couldn’t sway the negative sentiment in futures market, with July now experiencing seven session of declines (-$19). Despite a record harvest, end of March stocks (on farm and in the system) is estimated at a seven year low of 4.3mmt (-31% from last year). The recent wet soggy conditions in some regions across the Prairies has delayed sowing and thus new crop values are starting to price in future weather risk/delays.

Mid last week most of the US growing regions received rainfall ranging from 20 – 50mm, whilst the Canadian Prairies have now turned too wet, with 40mm falling so far this month. Eastern Ukraine and southern Russian Volga regions continues to be dry. This represents a double whammy with winter crops struggling and ground too dry to plant spring crops. Further northeast, key growing regions of Kazakhstan have been boosted by rainfall up to 20 - 50mm over the last week, helping spring sowing. 

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