Wednesday, June 13, 2012

Welcome Rain in West, whilst dryness lingers elsewhere

It has been more then a month between drinks, but good rainfall fell across most WA growing regions stabilisng spiraling crop concerns. Greater intensity was in the Geraldton and Northern Kwinana zone, but even in these regions rainfall totals were still erratic. Morawa for example, for the first five months of the year had only received 38mm (74mm deficient against the long-term trend). But so far in June the region has already received 79mm. Over the East Coast, most regions continue to hum along apart from SA Malle,  parts of Victoria and SW NSW dry conditions will have already had irreversible yield damage.  There is no joy on the forecast either, with these regions set to remain thirsty at least for the next week.

Grower new crop wheat was active at $250 port, but as prices drifted lower grower selling vanished. Track bids for old crop has held steady at the higher end of the trading range, bouncing from lows set earlier this month. Whilst canola market continues to tread water being in a $10 range since May. The AUD has bounced back nearly 3c, nudging parity against the USD, eroding new crop prices further.

Tuesday night the USDA released their latest world supply and demand report. It was considered slightly bearish for corn and slightly positive for soybeans and wheat. Verdict is still out on some production numbers though, especially with high yields still factored in for US crop and still a large Australian crop (26mmt).  Market attention now turns to the weather, and with forecast rain for the Midwest into the weekend may pressure futures further.

New crop production cuts were made in Russia (-3mmt to 53mmt), US (-300kt to 61mmt) and EU (-1mmt to 131mmt) whilst consumption was also cut by 4.6mmt on the proviso that cheaper corn will muscle in on market share. This Russian dryness story is a long way from over; temperatures continue to be nudging 37˚C through most of this week in the lower Volga region. Crop stress will continue, and potentially final output could be sub 50mmt. Australian output was steady at 26mmt, but at this stage would likely be an additional 2mmt to come off this. World ending stocks for both old (-1.47mmt to 195mmt) and new crop (-2.4mmt to 185mmt) were all lower. And although stocks to use ratio is lower year on year at 27.2%, it is still at comfortable levels. Remember that over the last year it has been the tight corn stocks (particular in the US), which has inflated wheat prices in the face of mountains of grain.

Global old crop corn ending stocks were adjusted 1.6mmt higher (129mmt), with only minimal cuts to Argentinean corn (21mmt), whilst Brazilian output was bumped up 2mmt (69mmt).  Chinese old crop stocks were increased by 1mmt to 59mmt, which flies in the face of the recent record domestic prices there!

New crop corn output +4mmt; EU (64mmt) and FSU (36mmt) were increased by 1.1mmt each. Whilst Chinese output was also +2mmt (195mmt), even though conditions have been dry. On the back of a monster crop (376mmt), US 12/13 ending stocks remain unchanged at 47.7mmt. This will be the biggest in seven years.  The USDA stuck with a record high yield estimate of 166 bpa, surprising the trade as crop conditions have deteriorated with key Midwest states topsoil parched. Last years average yield was 147.2bpa, however the 20-year trend is at 160.5pba. There is some good rain/cool temps forecast for the US Corn Belt (25 – 75mm) into this weekend, if this rain eventuates will continue to pressure new crop values. However over the last couple of weeks these rainfall events have all seemed to peter out, with rainfall deficits ranging between 100 - 150mm!

Oilseeds were the lone bull, closing higher on the back of tighter stocks and shrugging off potential wet weather in the Midwest. The USDA pegged US old crop ending stocks at just 4.7mmt, sharply below forecasts and 1mmt below last month. World old crop ending stocks (53.36mmt) was more or less unchanged from last month, with more cuts expected from the Argentinian crop. Chinese imports were also adjusted 1mmt higher to 57mmt, but imports could eventually be between 58 – 60mmt, with higher prices still not curbing demand.

Even though current US conditions (60% good/excellent), is 6% less then the ten year average at this time of year, the USDA left US new crop yield unchanged at 43.9bpa (+2.4bpa from 2011). This would be an 87mmt crop, +4mmt higher then last year. However the stocks to use ratio will continue to decline 1.3% to 4.3%, which is the lowest since 1965/66! The USDA even lowered exports by 544kt and crush by 272kt from May to make the number fit! All other 

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