Clear signs of changing grain market not seen

Steve Sloss
Steve Sloss

MIXED signals were an issue in our teenage years, and lo and behold, remain a challenge in our professional lives. The drivers of our market right now are all "potential" rather than "realised" and while many of them look supportive, at least in the short term, any clear fundamental impact is far from a done deal.

First on the radar is South American weather, with on again, off again forecasts for rain in Argentina and Southern Brazil creating fluctuations in corn and soybean markets in the last week.

With about a quarter of the Argentine corn crop now silking - and almost three quarters of their early soy crop blooming/setting pods - there is genuine concern that the recent run of hot, dry weather will impact on production potential if relief doesn't arrive soon. The chief agricultural climatologist at the Buenos Aires Grains Exchange was quoted last week suggesting Argentinean soybean production could fall to 50 million MT (vs the

USDA's recent forecast of 54 MMT). Meanwhile, private estimates for Brazilian soy production range from about 80.1 MMT to 81.2 MMT (vs the USDA on 82.5 million MT) - and apart from dry conditions in Southern Brazil, there is talk that excessively wet weather in the north could delay harvest.

And while there are also concerns over South American corn production, it is soybeans that are the driver right now - given their rapidly tightening global balance sheet in the face of persistent demand, despite higher prices. The phenomenal pace of US export sales is a case in point, with contracts now written for more than 90% of the USDA export estimate despite the fact we are less than half the way through the marketing season.

In a nutshell, the soybean market needs supply relief sooner rather than later, and South American production is key.

Oilseed markets, including canola and cottonseed, are a beneficiary of this supply uncertainty - and from a macro perspective, it is providing support to the wider grains complex.

Against this backdrop however, the market is struggling to reconcile a frustrating lack of apparent demand for US wheat.

The theory was, and still is, that with exportable supplies Black Sea and European wheat starting to run dry, we should see a marked increase in export demand for US wheat in January/February/March, which would in turn help boost CME futures, and - by default - the global wheat market.

While demand has improved in the last few weeks, it remains below the average pace required to meet US export target. And, while US Soft Red Winter wheat was successful in last week's Egyptian GASC tender, the result only served to confuse the market further. Just 60,000MT was booked, and the sale price of US$306.80/MT FOB the US Gulf was well below expectations.

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