A Few Early Thoughts
07/12/10 -- ABARE seem to have surprised more than a few this morning by raising their Australian wheat production estimate to a record 26.8 MMT. The old adage "rain makes grain" would once again appear to be true if they are correct. With the harvest in the east now delayed by 4-6 weeks I guess we won't really have an accurate handle on yields until it really gets going in full swing.
That seems unlikely to happen just yet, with the local Bureau of Meteorology predicting heavy falls of up to 150mm later in the week.
ABARE cut their 2010/11 wheat export estimate by 2.4 MMT to 16 MMT, reflecting the anticipated lack of quality high protein wheat. Even so that is still 0.5 MMT higher than the USDA's latest estimate and up to 2 MMT above some of the others kicking around.
The trade is starting to wake up to ideas that it's America that is going to have to make up the global shortfall in quality wheat next year. With Russia, Ukraine and probably Kazakhstan too pretty much effectively out of the market, and EU stocks likely to be virtually exhausted by spring the US is unlikely to find too much opposition in high protein wheat tenders in the first half of 2011.
The USDA's current US export projection for 2010/11 of 34 MMT could therefore be on the low side. Exactly halfway through the marketing year, they've already exported 14.5 MMT, with further outstanding sales of 8.7 MMT, according to the USDA. That's 23.2 MMT already shipped, or committed for shipment, against the 24.1 MMT exported during the whole of last season.
Projected US ending stocks for 2010/11 are probably also too high, but at 23 MMT - fortunately for the rest of the world - the well is far from running dry.
The flip side of all this is that Australia will be awash in low grade feed wheat in 2011. With plenty of potential homes in Asia willing to take that as an alternative to corn, corn bulls could rightly be a little nervous heading into the year-end with no firm decision on the blender's tax credit yet on the table.
ABARE peg wheat production in Western Australia at 3.8 MMT, leaving 23 MMT to come from South Australia and the eastern states of NWS, Victoria and Queensland. If a third of the latter is only feed grade (and some suggest that it could be more than that) then we've got an extra 7.7 MMT of feed wheat looking for a home on the world marketplace.
Australia Latest
07/12/10 -- ABARE surprised the market this morning by raising it's Australian wheat production estimate for this season to a record 26.8 MMT. They've tended to be on the high side of trade estimates all year, but this latest projection appears to have been met with bemusement by the rest of the trade who have been marking output (as well as obviously quality) down not up.
Whilst acknowledging that wheat quality has taken a hit recently due to heavy rains in the east, they didn't specifically quantify the magnitude of potential downgrades.
Today's estimate os almost 5 MMT higher than last season's output of 21.9 MMT, and comes on the back of record yields in most of the eastern grains belt, they say.
Again this is very reminiscent of the UK's wheat crop of 2008, which was still being harvested in northern regions at 26% moisture well into late October after a very wet summer and autumn. Despite trade production downgrades we subsequently brought in a record crop in excess of 17.2 MMT, although milling grade wheat was in short supply.
Despite today's news the overnight Globex market sees wheat continue to march higher, with the most active March contract currently up 12c.
You can read the full ABARE report here.
Chicago Close
06/12/10 -- Soybeans
Jan soybeans ended 11 3/4c lower at USD12.88 1/2; Jan soymeal finished USD5.10 lower at USD346.50; Jan soyoil was 9 points higher at 53.54. Profit-taking can probably best describe today's action, there wasn't a great deal of fresh news and the dollar was firmer. With month, quarter and year end approaching it was probably time to take some money off the table and bank a few Christmas bonuses. Weekly export inspections came in at only 33.495 million bushels, well below expectations. The USDA announced the sale of 116,000 MT of old crop and 55,000 MT of new crop soybeans to China.
Corn
Jan corn fell 5 1/4c, to USD5.53 3/4; March corn fell 5 1/2c, to USD5.68. The dollar was firmer, prompting fund selling. Ideas that the Australian situation is bearish for corn, on the back of them having much more feed wheat than normal to market sparked further selling. Unconfirmed reports of Australian feed wheat sales to the Philippines added to corn's unease, as too are concerns that the ethanol blenders tax credit may not get renewed at the end of the year. Weekly export inspections were low at 25.2 million bushels, although the USDA did report the sale of 116,000 MT of US corn to unknown.
Wheat
CBOT March wheat ended up 14c at USD7.93 a bushel; KCBT March wheat rose 14 3/4c to USD8.36 3/4; MGEX March wheat climbed 15c to USD8.50 1/4. Wheat led the complex today on more worries over Australian wheat quality, with added doubts on China and Russia adding to the mix. The USDA reported the sale of 160,000MT of HRW to unknown. KCBT and MGEX hit more than two year highs and Kansas wheat extended it's premium over Chicago to the most in 2 1/2 years. Weekly export inspections were in line with expectations at 19.215 million bushels.
EU Wheat Closing Comments - Monday
06/12/10 -- EU wheat closed a seesaw session mostly lower with Jan London wheat GBP0.45 easier at GBP187.00/tonne and new crop Nov down GBP0.35 at GBP156.00/tonne. Jan Paris wheat was unchanged at EUR235.25/tonne and Nov was 0.25 lower at EUR209.25/tonne.
Wheat traded sharply higher early in the session, with London wheat setting another fresh 2 1/2 year high for a front month and Paris wheat also hitting contract highs. Profit-taking kicked in later in the session, dragging most months into slightly negative territory by the close of play.
Even so the underlying trend is undoubtedly upwards, with weather concerns over Australia, China and the US foremost in traders' minds. Quality wheat volume keeps diminishing with excess rains already having taken their toll on Canadian and German wheat earlier in the season, the same now seems to be happening Down Under.
ABARE will report on Australian wheat production tomorrow.
Quality EU wheat supplies are getting tighter by the day too, with some eastern European nations already hanging up the sold out signs.
Only modest planting increases are forecast for EU soft wheat for the 2011 harvest, with the French Ministry today predicting just 2% more went into the ground this autumn. Agreste peg the area for next season at 5 million hectares, winter barley plantings meanwhile are seen falling for the second year in a row to 1.1 million hectares.
EU Rapemeal Prices
06/12/10 -- Latest guide prices for EU rapemeal.
Basis FOB Lower Rhine in euros/metric tonne, with change from previous trading day:
| Dec10 | 218.00 | +2.00 |
| Jan11 | 218.00 | +2.00 |
| Feb/Apr11 | 216.00 | +2.00 |
| May/FH Jul11 | 216.00 | unch |
| Aug/Oct11 | 188.00 | unch |
| Nov11/Jan12 | 194.00 | +1.00 |
Early Call On Chicago
06/12/10 -- The overnight grains were mixed, with wheat mostly 8-10c higher, but with corn down 4-5c and beans mixed either side.
Wheat is up again on continued concerns over quality in Australia following another wet weekend and more to come in the week ahead.
The differential between KCBT - the benchmark for quality wheat in the US - and CBOT wheat is currently at it's widest for 2 1/2 years. If you want quality the US is rapidly becoming the only shop in town with any stock left to sell. To underline that, the USDA have today reported the sale of 160,000 of US HRW wheat to "unknown".
They're also today reporting the sale of 171,000 MT of old crop and 55,000 MT of new crop soybeans to China, plus 20,000 MT of soyoil to "unknown", along with 116,000 MT of old crop corn also to "unknown".
It remains too dry in eastern Argentina, with only scattered light showers in the forecast for the week ahead. Around 20% of China's wheat crop is also now said to be under drought stress, and the US crop on the Plains is far from perfect either.
Corn is under a bit of pressure from ideas that the US blenders tax credit will not be renewed at the end of the month, as the Republicans flex their new-found muscles. The potential influx of up to 10 MMT of extra feed wheat onto the market from Australia is also a bearish factor.
From here on in we can also expect to see profit-taking through to the end of the year as traders look to bank a few bonuses. Currently I'd say that things are still looking fairly favourable for further wheat price appreciation, moderately so for soybeans, but less so for corn (the ginger-haired step-child of the trio).
Early calls for this afternoon's CBOT session: Wheat up 8-10c, beans down 1-3c and corn 3-5c easier.
Early Morning Vibe
06/12/10 -- Wheat leads the way higher again on the overnight Globex market. As most of us probably already know, England are doing very well in the 2nd test against Australia in Adelaide, with rain looking like the main obstacle to victory.
The culprit is a deep trough moving across South Australia which is forecast to move slowly eastwards into NSW and Victoria as the week wears on. Here it's already been one of the wettest Decembers on record, even though we are less than a week into the month.
Various analysts estimates currently say that anywhere between 6-10 MMT of the eastern Australian wheat crop will have to be downgraded.
Quality wheat availability is clearly going to be very tight in the first half of 2011, with the US likely to be the only volume seller.
Although in the UK the feed wheat supply chain also looks equally tight until next summer, there are question marks over demand too at current levels. Demand from the livestock sector is sluggish at best, wheat prices are high relative to other raw materials and imports of cheaper feed wheat from the continent are becoming viable at these levels.
In addition we have the spectre of the will they, won't they issue with regards to the renewal of the blenders tax credit in the US, which is due to expire at the end of this month. That could hit demand from the ethanol sector, which you will recall takes around a third of the entire US corn crop.
Too much rain isn't the problem in Argentina, it's lack of it after another largely dry weekend. The latest forecast shows "no significant rain expected over E Argentina for the week ahead, despite some threat later in the week," according to QT Weather.
"Last week, rainfall anomalies grew across E Argentina, being in deficit by 15-35 mm," they add. Neighbouring Uruguay is also being badly affected by drought.
Talking of drought, it wouldn't be Christmas without one in China too now would it? November temperatures 1-4C higher than normal, combined with a sharp reduction in rainfall in the North China Plain is stressing winter wheat in the region. Still, what Santa can't fix silver iodide can. They won't have to bother putting a silver sixpence into next year's Christmas pudding, it'll be full of the stuff naturally. Yes, I know that they probably don't eat Christmas Pud on the North China Plain, I'm using my artistic blogging licence. They can't read this stuff anyway, I'm banned over there, remember?
Just in case you missed it, Stats Canada unexpectedly raised their rapeseed production estimate for the 2010/11 crop by a hefty 1.4 MMT on Friday. Alberta's canola crop hit a record 4.5 MMT, they said. That took production in the three prairie provinces of Alberta, Manitoba and Saskatchewan to 11.7 MMT.
You'll be unsurprised to discover that there was more trouble at the Nogger household over the weekend when the police called round. No, it was nothing to do with Taff the angry Welshman and his wretched car for once. Nor indeed his blingy Christmas lights that were liberally strewn around his house frontage on Saturday like a Jackson Pollack on drugs. Now they are criminal. Two planes bound for Leeds/Bradford tried to land in our street last night.
No, the local rozzers knocked on the door sporting a photograph of MrsN#1 would you believe? They said "excuse me Sir, is this your ex-wife?" I said "yes officers, it is."
"I'm sorry Sir, I'm afraid it looks like she's been knocked down by a bus," they said. "Yes she does doesn't she," I replied, and off they went. Honest.
