Tag: Grain

The grain market continues to consolidate over the past week, after the large rise early in the month on the back of the Kansas snow event. There are some small glimmers of hope which are starting to crack through the bearish wall, and lend some support to prices.

Firstly, let’s have a look at futures. Late last week we saw a 10¢/bu rise (fig 1), however as we moved through the week half the gains were lost. At a local level basis around country moved very little (fig 2), and in the past week there was little grower selling as most farmers are pre-occupied with seeding. All in all, not very exciting in pricing.

At the moment, we think that we are close to the floor of the market and downside is quite limited. There are a number of weather woes around the world with the possibility of drought across the parts of the northern plains of the US. Locally it is increasingly looking like conditions will be dry over the next three months.

The BOM released their climate outlook summary which points towards a drier SA & WA (see map), which has already been experiencing dry conditions with many dry seeding. After having spoken to a number of farmers and consultants, it seems that the EP is in the worst condition and needs rain soon to get things going.

The International Grain Council released their monthly crop forecasts, reducing global end stocks for 2017/18 down 2mmt. This is largely insignificant; however, corn was reduced by 34mmt on the back of increased demand, which will help with sorghum and barley pricing if forecasts are accurate.

What does it mean

The main focus for farmers this week will be keeping an eye on the heavens. We are well into the weather market and although global stocks are still exceptionally high there are still the opportunities for spikes in pricing.

In this week’s comment we look at a surprise corruption investigation into the Brazilian president, which has caused shockwaves throughout the country, devaluing the Brazilian Real and impacting agricultural commodities.

This week the wheat market was largely quiet (figure 1) with a lack of fresh news, there are still continuing concerns in Kansas, however the worries have switched from snow to excess waterlogging. In the coming weeks, we will start to gain more clarity. At a local level basis levels were fairly static with the exception of small increases in Port Lincoln and Kwinana (figure 2). Particularly in Port Lincoln, where there are concerns about lack of moisture for seeding, and with it looking increasingly likely they will miss any falls this weekend.

They just can’t get a break in Brazil, with a high number of politicians involved with bribes including with large-scale meat packer JBS. The scandal has reached the top tier of the government with President Michel Temer being placed under investigation for alleged payments of to keep witnesses quiet. All in all, it’s a messy situation which has impacted the Real (figure 3) which plummeted against the US dollar a whopping 7%.

Currency plays a part in determining which countries are more attractive for exports. Brazil is a major exporter of soybeans and cattle, and exports will shift to Brazil. It is always important to keep an eye on the other major exporters as we have seen major volatility in the past due to political uncertainty.

Due to the falling currency, there is now increased demand for Brazilian soybeans which has led to US soybean futures falling (figure 4) with exports likely to switch origin. Over-night they fell a dramatic US$11/mt, wiping out all gains in the past month.

What does this mean?

Overnight the commitment of traders report will be released, which will give an insight into whether the speculators are bullish or bearish on the market.

Locally interest will be towards the rainfall expected across much of the country, to determine how beneficial it has been.

This week’s new season World Agricultural Supply and Demand Estimates (WASDE) were somewhat of a letdown, in terms of impact in prices.  We have however seen some movement in local markets, notably for new crop canola and old crop wheat.

Old crop canola prices have been frustratingly sticky, for those who are still holding onto inventory.  The market is stuck around the $520-525 port level, or $540 delivered Melbourne.  This is a slight discount on harvest, so not much has been gained or lost through holding Canola.

Figure 1 shows that new crop Canola has had a nice little rally in recent weeks. Concerns surrounding sowing weather in Canada has given ICE Canola a lift.  The AUD has lost 5.5% relative to the Euro in the last month, which along with a small rise in MATIF Rapeseed, has seen the European contract add $40/t in our terms.

Local Canola prices for 17/18 have lifted in line with futures, with bids this week around the $530/t port level.  Interestingly, basis on these forwards to both ICE and MATIF are currently much stronger than at the last harvest.  However, they remain below the levels of the three years previous.

Since Anzac Day delivered wheat and barley prices have gained some ground. With growers busy on seeders, no one is driving the trucks so this market has tightened somewhat.  SFW wheat has hit $218/t delivered Melbourne, while F1 Barley is up to $200. These prices are 10-20% better than harvest, and are worth considering.

The week ahead

The WASDE report this week was largely in line with expectations, but it did predict a decline in world oilseed stocks this year, which might provide impetus for Canola markets if there are some production problems.

For local delivered markets this might be a sweet spot for selling.  There is likely to be a bit of supply come on once sowing is finished, and especially in the new financial year, so locking some pricing in now might be a good idea.

An interesting but frustrating week in the grain trade. At the start of the week newswires and social media were inundated with reports of general grievous damage to Kansas wheat crops caused by the force of snow and frost. In this week’s comment, we look at how the market responded locally and globally, and my views on being cautious in regards to the Kansas wheat tour results.

The background to the issues at the early part of this week are explained in Tuesdays analysis piece “It’s snow joking matter”, but in summary the speculators had a record net short, and the reports pouring out of Kansas spooked the market. The traders who were short, had to buy contracts to close their short positions fuelling a very strong rally.

The rally can be seen in figure 1, which shows the spot market (and forwards) rising around 19¢/bu. The Kansas annual wheat tour also coincided with this week’s events, they performed a major croup tour stopping at 469 paddocks, and came up with a final yield estimate of 46.1 bushels per acre, which is below last year but above the five-year average. This announcement then caused the market to fall due to expectations that the weather events had largely caused little impact.

I would like to point out a few issues with the methodology used in this year’s crop update. Due to the snow event, the crop tour scouts were unable to perform any yield assessments. This therefore meant that the number of fields assessed reduced from 655 to 469 this year.

This yield estimate is therefore based on the fields with the smallest impact by recent weather, and yield/hectare losses will most likely be revised in the coming ten days. This may cause another short rally when the snow-covered fields are estimated, but likely the damage will not be as bad as previously expected.

At a local level (figure 2) we can see that prices have risen during the last week by around $5-10 dependent upon port zone. The local rise has seen the West receive most of the rise in futures, however other port zones have not seen the full rise. The basis levels also received a small rise (figure 3), but a rise which must be tempered by the fact that the previous week had seen a sharp fall in all port zones.

What does this mean?

We need to keep a very close eye on the market as it may present selling opportunities over the 1-2 weeks, if (as I expect) the Kansas crop is re-estimated to take into account the snow-covered fields. This may potentially result in speculators with short positions being spooked again. The commitment of trader’s report for this week will be of interest as it will give an indication of whether the funds are still bearish on agricultural commodities or has this week made them reassess.

On Saturday morning (Aus time) the US non-farm payrolls will be released and if the we see the US economy recovering and the likelihood of further rate rises we could see further pressure on the A$. Furthermore, Thursday morning (Aus time) the USDA WASDE report will be released giving us another insight into the supply and demand fundamentals.

Another relatively quiet week in the grain trade both locally and globally. In the past week, there have been further crop forecasts released, weather woes and political posturing from the Trump administration.

The wheat futures market has been on a downward trend since the start of the month (figure 1), and fell to as low as 398.5¢/bu. Overnight, futures rose around 5.75¢/bu (or A$2.8), it’s not enough to get overly excited about but any rise is better than a fall. The rise can be attributed to a recovery from falls in previous nights over concerns of posturing by Trump (more below), and concerns relating to cold weather. Although there will likely be issues with yield and quality in the US, it is still too early to get a realistic picture of any damage.

The International grain council (IGC) released updates to their projections, there were few surprises. Overall grain supplies are projected at their historic high (2.6bn mt) for 2016/17, and old crop end stocks will largely cancel out lower production in the 2017/18 season. Our view still remains the same that a large supply shock is required to put fire under wheat prices to an excitable level.

At a local level this week has been a short one due to the ANZAC day commemorations, which also traditionally has been a trigger for widespread crop planting around the country. Where it is not too wet to get machinery into the paddocks the country is for the most part in full swing. However, we have seen a sudden dip in basis levels across all port zones (figure 2), with Adelaide now following Port Lincoln into negative basis territory.

This week there were concerns that Trump was ready to scrap the North America free trade agreement (NAFTA), however it was later announced that there would a ‘renegotiation’. Free trade agreements were at the centre of Trumps campaign, with fears that they negatively impacted on American jobs. The removal of NAFTA would be a worry for American grain growers, as trade with Mexico has drastically increased since 1994 when it was enacted (figure 3). The overwhelming majority of imports are from the US but in recent months it is speculated that Mexican buyers have been examining options from the South (Argentina & Brazil).

What does this mean?

The grain trade will be keeping an eye on the weather in Europe and North America, in order to determine whether there are any major concerns.

At a local level, most farmers will be concentrating on getting a crop into the ground and marketing for old and new crop will largely be put to the back of the mind.

On a separate note growers holding old crop grain in silo bags in areas where mice are starting to become a ‘plague’ concern are advised to double check any bags for infestation.

Another week, and another week of relatively flat prices for wheat.  There was some upside for canola in international markets, which is providing some opportunity.  There has been some talk around regarding CBOT wheat being primed for a spike, and there might be something in it.

Earlier this week we took a look at some of the production data US wheat markets take note of, and there is also some data which shows how traders react.  The CFTC Traders Summary tells us what type of trader holds long or short positions in CBOT wheat.

The most interesting data in the Traders Summary report comes from the Managed Money positions, where they report how many are long and how many are short.  Figure 1 shows the Managed Money short positions have been climbing stronger, and sit close to an 18 month high.  The Net Short, that is the number of short positions minus long positions, also sits close to a high.

This basically means that speculators are punting on wheat prices falling, as they are heavily sold.  While this is the general feeling in the market, it does bring opportunity.  If something does go wrong with production somewhere, there are a lot of sold positions which will need to be bought back in a hurry, which can add impetus to any price rally.

Canola has found some strength in Canada this week as wet weather delays sowing.  The spot ICE contract rallied over $30 to $520/t, while Jan-18 gained $15 to sit at $497/t today.  With the weather forecast not looking favourable for sowing, there could be some more upside for Canola.

The week ahead

With Anzac Day, and rain falling last week, conditions for sowing are almost ideal.  Any grain growers who haven’t started yet will be well and truly underway next week, and old crop selling into delivered markets might slow.  This could see some improvement in local basis, but I’m not sure I’d want to be a seller in 6 weeks’ time when growers look to quit some stocks.

The Chicago wheat market found a bit of strength this week on the back of some less than ideal sowing weather.  This sees spring crop going in late, and the spectre of some areas not getting in at all.  All this despite another relatively bearish WASDE report.

In reality, price movements were small in international markets this week.  But after months of tracking sideways at low levels, commentators need something to talk about.  CBOT wheat gained 9¢ over a few sessions, to hit a two week high of 432¢/bu.  In our terms this puts spot wheat at $212/t (figure 1), and December 17 at $235.

In oilseeds the usually benign April WASDE report threw up a few surprises.  The USDA increased Brazilian soybean production by nearly 3mmt, which had the flow on effect of increasing global ending stocks by 5.6% (figure 2).  This was well beyond expectations and saw soybeans fall around 10¢, before recovering to actually post a gain for the week.

ICE Canola followed soybeans lower, but changes were marginal with Jan 18 sitting at $481/t.  With the AUD/CAD currently at parity it’s not hard to work out what the price is in our terms.

Locally there is little going on in markets.  Wheat, barley and canola prices continue to track sideways as growers and buyers continue the standoff.  Growers say they need higher prices, buyers know there is heaps of wheat out there which has to be sold at some stage.

The week ahead

The coming month sees the USDA release their first estimate for the 2017/18 growing season, and this can often bring volatility to the market.  There is no doubt US wheat production is going to be lower, but whether this can move the market remains to be seen.

In the short term selling opportunities continue to revolve around export deadlines and delivered markets.

When the weather is benign the market starts looking for reasons to move.  Last night it was the slow pace of wheat shipments leaving US ports.  Locally markets have been rather steady, with some short term opportunities cropping up on shipping squeezes.

Figure 1 shows a rather boring CBOT wheat chart.  Recent swings in prices have been small on an historical scale. As the volume of supplies dampens any attempts at a real price rally.

CBOT finishes this week down 2¢ at 423¢/bu, having been as high as 429¢ and as low as 421¢.  In our terms, CBOT remains stuck in its $225-235/t range, which while being unexciting on a hedging front, will deliver a price at least 10% higher than the 16-17 harvest.

ASX East Coast Wheat Futures are maintaining their premium to CBOT, possibly assisted by the Bureau of Meteorology’s latest 3 month outlook (Figure 2).  ASX Jan-18 currently sits at $241/t which is obviously better than current values.

The new ASX contract is deliverable in Victoria, NSW and Queensland, which makes it more attractive to sellers.  Even with the spot contract for May at $221/t, there would be an advantage at some Victoria sites in selling futures and going to delivery, rather than taking site bids which equate to prices $5-10 lower.

There has been intermittent interest in Canola, ASW and Feed Barley in recent weeks, with some growers managing $10-20 premium on published bids when buyers are trying to fill ships.  If you’ve got wheat in store it’s worth looking at the shipping stem to see when boats are going and trying your luck with offers on Clear, or by talking to buyers or brokers.

The week ahead

Figure 2 is even making news in international grain wires, with some concern around the sowing of the coming winter crop.  It hasn’t done much for prices, but if we do see a late autumn break, spot prices are likely to creep higher as growers use abundant grain in store as a drought hedge.

Our target for hedging new crop continues to be at the $250/t level for wheat, and $500 for Canola, both of which are a little way off.  As usual growers are should be hoping that Figure 2 is wrong, and US and or Russian growers get some bad weather during their spring and summer, to take the edge off heavy world supplies.

In nautical terms, dead calm is the absence of wind or waves. It feels that way at the moment in the grain trade. The market has largely drifting with little in the way of wind or waves to give momentum in any direction. Will the USDA & IGC report provide some wind behind our sails?

In the summary, we pointed out the largely directionless market, this can be seen in figure 1. The futures market has traded in a largely narrow band between 420-430¢/bu since the beginning of the year, with the exception of a short rise in mid-February caused by concerns of poor US rainfall. It has to be noted that the rise in February, although it looks large on this chart, it is far from an astronomical rise equating to only around $9.

However, a rise in futures does not always equate to a rise in local prices, in figure 2. We can see that during February basis levels around Australia fell close to the same level that futures rose. A real case “One hand giveth, the other taketh away”. In the past ten days, basis in the main ports around Australia has largely stabilised.

Yesterday the International Grain Council (IGC) released their global crop forecasts, and although not particularly positive for prices, does provide some hope for the future. The report indicates that in 2017/18 global wheat production would fall from 745mmt to 735mmt, with end stocks to be around 484mmt versus 513 this year. It has to be tempered that this would still remain the 2^nd highest stocks in history. However, it does start to show a depletion in global stocks.

Next week

Overnight the USDA will release their stocks and prospective plantings report for the US. The report has the potential to move markets, and with expectations of diminished plantings in the US – will there be any surprises?

There are a lot of growers holding grain in their ownership, either on farm or central storage. In a directionless market, it is time to start thinking of alternative strategies to avoid accumulating storage charges.

I will be on holiday for the next three weeks in sunny Scotland, however my counterpart Angus will be covering the grain analysis and commentary.

At times, I feel jealous of my counterparts writing about the livestock and wool markets. They always seem to have something positive to comment on with markets driving higher. However, markets are cyclical and things can change quickly.

The futures market has subsided (figure 1) in the past week, as areas of dry concern receive forecasts of substantial rain in the US, and minimal bad news coming out of Europe. The reality is that the trade is concerned about USDA stock reports due next week. This asks the question, what if exports have not been high enough to deplete stocks?

The extent of the global stocks is applying pressure, which since the start of the year has seen the spot futures trade in a band of 20¢/bu from 420¢ to 440¢. When we look at the seasonality of the spot futures contract (figure 2 -animated) we can see that we are well below the average since 2010, yet looking back further to 2000 & 2005, we are closer to the average futures price.

However at a local level, we have seen basis increase across all port zones (figure 3) at an average increase week on week of $3.50/mt. This is using the public bid, and there are further opportunities out there for non-public sales.

We expect also that in coming weeks, we may see improving feed barley prices as buyers scramble to fill orders for the massive sales into Saudi Arabia. So, it’s not all bad!

Next week

All eyes on the northern hemisphere, every day that goes by without hiccup is a day with less risk. The major risk is huge carryout and an average to above average crop.

We will get an insight into inventory levels with next week’s USDA quarterly stock report.