Wednesday, May 30, 2012

Speculative Selling Continues in Grain Markets

Markets continue to face wide spread selling by speculative and commodity fund accounts, tied in part to the uncertain macro-economic picture and erratic weather. After last weeks huge run up in futures, the funds now hold a net long 4,127 contracts (561kt), +53,185 contracts (7mmt) for the week, a change from a net short to net long position. However the falling AUD has limited stronger declines. International futures continue to follow the whims of forecasts, as weather continues to drive the markets. However with US crops declining and warm/dry conditions persisting in Nth China, Eastern Russia, Kazakhstan and Western Australia (whilst in Canada it is too wet), may support the market from the recent downturn. Domestically apart from WA, most growing regions received welcome rain late last week, with only central Mallee and Sth Western NSW still dry

Hot and dry conditions continue in the US southern plains with temps hitting 36˚C, with wheat in key growing regions now too advanced to get any benefit from passing showers.  As a result the US winter crop limps into harvest, with a 10% decline in the good/excellent rating over the last month. But at 54% is still well ahead of last years drought ravaged crop at 33%. You would expect yields to tail off as the harvest progresses north, as these more immature crops were more susceptible to the last two months of dry/heat. Harvest continues to gains momentum in the south, with Oklahoma (41%), Texas (27%) and Kansas (4%) complete. Northern Spring wheat is all sown, with 79% of the crop rated good/excellent.

Weekend rain for southern Russia didn’t live up to expectation (0  - 12mm), but some rain is still forecast. Kazakhstan and Siberia also didn’t receive any rain, but temperatures have been milder at 20 – 25˚C.  Much more rain is needed to make a difference and many regions wheat output (both spring/wheat) will be lower. Ukraine has been a shining light, with the Ministry saying crop conditions have improved on the back of recent rains and they now rate 71.5% of the winter wheat crop as good/satisfactory. Further West, crops in the UK, France and western Germany will be benefiting from the recent warmth after a good soaking in April and early May, however eastern half of Germany and Poland remain a concern.

Improved weather forecasts for the US Midwest alluding to rain this week and next week helped to spark aggressive selling, with corn down to the lowest levels since January 2011. Although the short-term weather may be viewed a negative force but a shift back to a warmer and drier than normal pattern for the 11-15 day forecast may provide some support. Rumors that China has been cancelling US corn purchases and switching to Sth America is unconfirmed. Brazilian FOB prices are around $20/t cheaper than US at the moment, however the full shipping stem is still forcing customers to buy from the US.

The warm/dry weather last week has allowed most of the corn crop to be planted; as a result 92% of the crop has emerged (+23% ahead of average). And as a result 72% of the crop is rated excellent/good.  Northern US corn belt got received some welcome rain over the weekend, it varied widely from 10mm - 70mm.  However the rain did miss a lot of the main Corn Belt growing areas.  Whilst Ukraine corn regions continue to look ideal after a dry start. Planted area has increased by 1m ha (4.5m ha) after growers replanted frosted winter wheat to corn.  Forecast tonnages ranges between 21 – 24mmt, and may displace Argentina as the world’s second biggest exporter.

In the global oilseed complex, US beans will continue to be in the midst of a weather market for the short term, with the early sown crop in the US needing moisture after a drier the normal May. Forecasters continue to see tightening old crop ending stocks as both crush and export demand has been better than expected. Over the border, Canadian prairies have had a cool/wet week providing some underlying support. Some paddocks were lost due to wet conditions and frost may need to be re-seeded. However, conditions remain relatively favourable overall, and the mounting expectations for a record large canola crop continues to encourage grower selling.

Argentinian bean harvest continues to splutter along, estimated at 89%. Yield and tonnage continue to be revised lower (-1mmt to 39.9mmt) with frosts/rain the latest instigators. Long time before sowing kicks off in Nov/Dec, but hasn’t stopped forecasters dialing in huge yields. Brazilian bean crop could top 80mmt, which is well above production this year of around 65-66mmt. Argentina's bean crop could be anywhere between 55-60mmt, which compares 41-42mmt this year. 

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