Is Corn Being Replaced By Wheat?

By: Greg Vincent

It seems that the market has done its job for at least the time being. Corn prices rose to significant enough levels to curb enough demand this summer that supplies appear to be adequate enough for the remainder of this marketing year. But that brings on a new set of problems and weather remains the determining factor in success or failure.

 

"I think we’ve successfully rolled the problem of tight stocks from old crop to new crop. There is some discussion that we’re below trendline now, and I think we’ve priced in about 157-158/bu. acre national yield. If we keep the heat in here, as good as the crop is in Iowa, Illinois and Nebraska, we could hurt it at night like we did last year."

 

CLICK TO HEAR THE FULL INTERVIEW WITH JERRY GULKE.

 

That concern is dark respiration and the fact that corn essentially get a chance to rest during the night when overnight temperatures remain too high. The plant’s energy is then spent trying to cool itself down rather than producing kernels of corn. That was the case last year and yields were lower than normal, Gulke says. It’s still too early to say if it will be a problem this year or not, but the heat wave of 2011 isn’t doing this crop any favors right now.

 

There is anticipation that crop ratings will drop again on Monday and how much will they drop? They dropped 3% last week before we had that real hot weather this week."

 

Futures for all grains and soybeans moved mostly sideways in futures trading this week. Following rains late in the week, they opened lower on Friday, which would have brought prices for the week lower. The only old crop month remaining on the CBOT for corn did close lower for the week, but new crop closed mostly even on the week as fears over the heat dome mounted throughout trading on Friday, Gulke says.

 

Wheat prices and corn prices are becoming more tied as the limited corn supplies are causing livestock feeders to look at wheat as an alternative feed. "We’re talking to more of our clients recently who are shifting to wheat for feed," he says. "One of our clients who runs a mill in California said recently that we wouldn’t believe how much wheat they are importing for feed. And he says it didn’t start a week ago…it started 2-3 months ago."

See the original article >>

Wheat Supplies Higher

By: AgWeb.com Editors

U.S. wheat supplies for 2011/12 are raised 90 million bushels as higher carryin and production more than offset reductions in imports and higher use. Beginning stocks are raised 52 million bushels mostly reflecting higher estimated carryout for 2010/11 as reported in the June 30 Grain Stocks report. Production for 2011/12 is forecast at 2,106 million bushels, up 48 million from last month as higher winter wheat production and higher forecast yields for durum and other spring wheat more than offset lower area as estimated in the June 30 Acreage report. Partly offsetting is a 10-millionbushel reduction in projected imports with lower expected supplies in Canada. 

U.S. wheat usage for 2011/12 is raised with a shift in expected seed usage from 2010/11 and higher expected exports compared with last month. Seed use for 2011/12 is raised 7 million bushels as late planting in the Northern Plains shifted seed usage for the 2011 crop into the 2011/12 marketing year which began June 1. Exports are raised 100 million bushels with larger domestic supplies and reduced competition expected from Canada. Ending stocks are projected 17 million bushels lower at 670 million. While ending stocks remain adequate for most classes of wheat, durum stocks are projected to be especially tight with sharply lower area and production this year. The 2011/12 season-average farm price for all wheat is lowered 40 cents on each end of the projected range to $6.60 to $8.00 per bushel, mostly reflecting the sharp drop in projected corn prices this month.

 

Global wheat supplies for 2011/12 are projected 0.9 million tons higher as larger beginning stocks more than offset lower expected world production. Larger carryin in the United States and Russia accounts for most of the increase in 2011/12 world beginning stocks. Revisions to 2010/11 trade and usage for a number of other countries, based on the latest data, also affect world beginning stocks for 2011/12.

 

World wheat production for 2011/12 is projected down 1.9 million tons with reductions in Canada, Ukraine, and Mexico, more than offsetting increases for the United States, Turkey, and EU-27. Canada production is lowered 3.5 million tons as persistent heavy rains and flooding well into the second half of June limited planting opportunities for spring wheat in southeast Saskatchewan and southwest Manitoba. Production is lowered 1.0 million tons for Ukraine as persistent spring dryness in north central areas of the country stressed developing plants and appears to have limited vegetative growth and tillering. Production is lowered 0.4 million tons for Mexico based on the latest official reports. Turkey production is raised 1.1 million tons as abundant spring moisture boosted yields across the country. EU-27 production is raised 0.6 million tons as higher yields for Spain and Romania more than offset a reduction for Hungary.

 

Global wheat exports for 2011/12 are projected 2.4 million tons higher, mostly with higher expected exports from the United States and Russia. Imports are raised for EU-27, Egypt, Mexico, Japan, Sri Lanka, Malaysia, and Yemen. Partly offsetting are import reductions for the United States, South Korea, and Vietnam. Exports are raised for Russia as relatively low prices make Russian wheat competitive into North Africa and Middle East markets. Exports are also raised for Turkey with larger production. Exports are lowered for Ukraine reflecting the smaller expected crop. Lower exports from Canada are more than offset by higher exports from the United States.

 

Global 2011/12 wheat consumption is raised 3.0 million tons, mostly reflecting higher wheat feeding in EU-27, Russia, and Turkey, higher food use in Egypt, Japan, and Russia, and higher industrial use in Canada. Partly offsetting these increases are reductions in wheat feeding in Australia, Canada, and South Korea. Global ending stocks are projected 2.1 million tons lower with most of the decline expected in the Russia, Canada, and the United States.

See the original article >>

Morning markets: cotton leads decline on China, euro jitters

by Agrimoney.com

Agricultural commodities could not maintain their ability to swim against the tide.

External markets continued on Monday the slide with which they ended last week, given an extra shove by data over the weekend showing Chinese inflation reaching a three-year high of 6.4% in the year to June.

This increase, spurred by a 14.4% rise in food prices, spurred thoughts that further interest rate rises might be in the wings, with associated risks for economic growth in the Asian powerhouse.

"We reckon [on] at least one interest rate hike in the third quarter, and view inflation will become 'structurally' higher for the following years," Australia & New Zealand Bank said.

Spread to Italy?

While Shanghai stocks managed a, typical, counterintuitive move, adding 0.2%, with separate data showing a rise to $22.2bn in China's trade surplus last month, other Asian stock markets failed to see the upbeat side.

Tokyo's Nikkei index shed 0.7%. Fresh concerns for eurozone sovereign debt gave a further dent to sentiment, after the European Union called a meeting of senior officials amid concerns that jitters could spread to Italy, the region's third-ranked economy, after Germany and France.

Furthermore, the Financial Times reported that some European leaders are considering allowing some default by Greece, the region's worst affected economy.

The euro dipped, and the dollar added 0.5% against a basket of currencies as of 07:50 GMT (08:50 UK time), making dollar-denominated assets such as many commodities that much less competitive as exports.

'Rain interruptions'

Prices of many raw materials fell, with New York crude down 1.3% at $95.00 a barrel.

And, among farm commodities, wheat was among the weakest, down 1.7% at $6.40 a bushel for September and 1.7% to $6.79 ¾ a bushel for the December lot in Chicago.

Kansas wheat for September fell 1.7% to $7.15 a bushel for September.

Pressure from harvests picking up pace in Europe too added pressure, despite some rain interruptions in France, the EU's top producer, and "further thunderstorms forecast for this Wednesday," according to Agritel.

Still, in northern France, the consultancy added that "yields seem less impacted by drought occurred this spring", helped by their late development which allowed them to benefit more from early summer rains.

Any sellers left?

Corn fell 0.5% to $6.38 a bushel against for September and 0.9% to $6.31 ½ a bushel for the best-traded, new crop December contract, given some support by fresh signs of demand.

South Korean feedmaker Nonghyup Feed bought 110,000 tonnes of corn for delivery between October and November.

Furthermore, there are some doubts as to the weight of selling left likely in corn, given the liquidation which funds have already undertaken in corn.

Regulatory data out late on Friday showed that large funds "have blown out of another 36m+ bushels of ownership which would have them reducing their length by nearly two-thirds since the beginning of April", Jon Michalscheck at Benson Quinn Commodities said.

In the latest week (to last Tuesday), "speculators liquidated a quarter of their net long position in corn, and positioning is now much closer to 'neutral'", ANZ said.

China damage

Even soybeans lost their grip on their gentle strength of late, which has been spurred by official data last month showing US sowings of the oilseed were below forecasts, at a time when supplies already look tight.

The news on China, the top importer of the oilseed, sent Chicago's best-traded November lot down 0.3% to $13.43 a bushel, with the old crop August contract shedding 0.2% to $13.44 ¼ a bushel.

Still, that was better than cotton, of which China is also the biggest buyer, which tumbled 2.2% to 111.41 cents a pound for the best-traded December contract.

The lot earlier hit 110.82 cents a pound, its weakest for five months. The decline also took the fibre below its 200-day moving average, near about 111.73 cents a pound, below which is has not fallen since August, according to Mike Mawdsley at Iowa-based broker Market 1.

Luke Mathews at Commonwealth Bank of Australia also noted the depressant to prices offered on Friday by a "bearish US jobs report and another week of [cotton] net export sales reductions in the US".

'Powerful heat dome'

More will be known on US shipments later, with the weekly data on export inspections.

Also potentially to effect market moves will be the prospect on Tuesday of the latest US Wasde report on world crop supply and demand estimates, which are of particular interest this time given the changes two weeks ago to estimates for US crop sowings, and unexpected stocks data too.

And the weather could, as ever, move the markets, particularly with attention on a US "heat dome" set to hit the Midwest – after some cooler weather and thunderstorms over the next few days.

"A powerful heat dome continues to appear in all the models," weather service WxRisk.com said.

"The dome develops around July 15 and spreads into the western Corn Belt on the 16th and looks to last for several days.

"The greatest heat is going to be from the Mississippi River westward towards of the Rockies."

See the original article >>

Durum resists further sell-off on grain markets

by Agrimoney.com

Durum is, thanks to weak North American sowings, avoiding the worst of the sell-off in grains which continued on futures markets, sending Paris's November wheat lot to a fresh three month low.

Early resilience on grain markets on Thursday gave way to fresh selling, sending November wheat down a further 1.4% to E194.00 a tonne at one point, the weakest for the contract since March.

London wheat lost 0.8% to £162.75 a tonne with Chicago wheat, the world benchmark, losing 0.9% to $6.32 ¾ a bushel as of 10:00 GMT, if remaining well above the lows of the last session.

Prices are being depressed by talk of a significant backlog of shipments to sell from Russia after the lifting of its export ban next week, with dollar-denominated assets also facing the headwind of a 0.8% jump in the greenback against a basket of currencies.

"Russia has got to export this before the new crop arrives anyway, so they are not going to hold out for high prices," a market source told Agrimoney.com.

Against the grain

However, prices of durum wheat, the type used to make pasta, while not quoted on futures markets, remained relatively stable on cash markets, selling for E350 a tonne at France's Port La Nouvelle, according to Agritel, the Paris-based consultancy.

That represented a fall of 1.4% on the day, compared with slides of nearly 5% in soft wheat, and more than 2% in corn and feed barley.

For June overall, durum prices are still nearly 19% up, compared with losses of 15.4% for wheat, at the French port of Rouen, and declines in all other significant crops, including malting barley and feed peas.

This diverengence was echoed in Australia, where AWB, in its first pools update as a Cargill-owned company, on Thursday lifted estimates for durum returns for farmers in eastern states using its wheat pools, while cutting forecasts for all other grain types.

At Aus$375 a tonne, top-quality durum is expected to achieve 7.8% more than benchmark Australian prime wheat over 2010-11.

'Quality risk'

Durum's resilience follows a dismal sowing season in both western Canada and in the northern US states, major producing regions.

"Only 6% of the North Dakota durum crop was planted by the third week of May, which is exceptionally late," the Canadian Wheat Board said.

"Late planting in North America also increases quality risk for the crop, which is supportive of higher-quality values."

Furthermore, while yield results from North African and Spanish crops are expected to turn out strong, late rains have depressed the quality of the crop.

See the original article >>

Grains breaking flag/pennant pattern ...

by Kimble Charting Solutions

See the original article >>

Agricultural Commodities On the Rise

By: Sara_Nunnally

The financial markets had a horrible day yesterday. There's no way of sugarcoating it. The Dow closed below 11,900 and both the Nasdaq and the S&P 500 ended about 1.75% lower.

Know what started to climb in after-hours trading?

Grains... Agricultural commodities like corn, wheat and soybeans. This is good news for grains. They had been sliding for a number of days because of lower energy costs. Some stabilization could mean investments in grains are in for a bounce.

I do think corn and wheat will climb from here. Jack Scoville of Price Futures Group is predicting tight corn supplies by September, and that the USDA will need to lower production estimates for wheat.

This news hasn't filtered down yet.

Two Agricultural Commodities Investments

You may remember me talking about two agricultural investments back in January... The iPath Dow Jones UBS Grains ETN (JJG:NYSE) and the PowerShares DB Agriculture ETF (DBA:NYSE). Both invest in agricultural commodity futures. The JJG was focused on grains exclusively, but the DBA can hold lots of different agricultural commodities.

Right now, the majority of DBA is made up of coffee futures. This isn't the same mix as when we first talked about DBA, and the ETF is down almost 5%.

It might be time to take this money off the table.

But JJG is a different story.

As of May 31, 2011, this was JJG's portfolio:

JJG is also down since January -- about 4%. But if grains get a bounce here, and grain prices start climbing, this is the investment you want to be holding, rather than DBA.

But here's the thing to watch. JJG's chart looks a lot like a futures chart for soybeans. Take a look.

Here's JJG:

And here's a chart for soybean futures:

Soybeans have been swinging back and forth for the past six months. One of the reasons for this has been low demand from the investment sector in favor of higher corn investments.

What this means for JJG is that any momentum from a jump in corn has been hampered by waffling soybean prices. On June 30, the USDA will release its Quarterly Stocks and Acreage update. That report could have an impact on where soybeans head from here.

Until then, we're going to keep JJG on our list unless we see its share price drop to $51. At that point we'll reevaluate.

P.S. It's a bit hard to talk about corn and wheat being "down" and ready for a bounce. Wheat is up more than 25% from this time last year. Corn is up an amazing 78% in a year. These kinds of price increases have huge consequences... We've seen food riots and even uprisings that have overthrown governments.

This kind of upheaval isn't over by a long shot. The world is on the edge of a food shortage, and to get ahead of this crisis, you have to have a plan. Safe Haven Investor editor Kent Lucas has one, and everyone should read his letter to get prepared for a food crisis. You can access this letter here.

See the original article >>

More Thoughts On Feed Wheat Being Substituted For Corn

By: Kevin Van Trump

I know many US analyst and traders will be quick to point out that producers here in the US rarely like substituting "feed wheat" for corn. The problem is feed wheat's widening discount to corn is starting to push up demand for wheat in many Asian countries. They understand that while corn is a source of starch, wheat does provide them with ample protein in their animal feed. Right now there are rumors flying everywhere that many animal feed manufacturers have started covering their import requirements for the October-December quarter, and they are seriously considering a much larger switch to less expensive feed wheat varieties. Currently Australia feed wheat is penciling about $95 cheaper than US corn to the Asia countries. Some are reporting that further down the line this trend will reverse. I am not sure when though, as US new crop corn shipments scheduled from October onwards are still running close to $65 per ton more expensive that Australian feed wheat, and about $40 per tone more than Ukraine's feed wheat. Maybe here in the US, producers aren't making the switch, but with no major corn purchases reported in East Asia for the last two weeks, you have to imagine Asian producers and end users have a different way of thinking. From what I hear, most insiders are looking for a 5-10% shift in feed millers' usage towards wheat and other ingredients and away from corn this year. Some traders are thinking this might already be taking place however, because corn has been selling at a premium to wheat in the cash market over in Asia for sometime now. With the US lowering their corn production estimates and being the world's largest exporter, some Asian nations are starting to worry that wheat may soon be their most viable option. In late April, South Korean buyers purchased 275,000 tons of feed wheat in the span of just two days, mostly from Canada and Europe for shipment in the third quarter. They are now seeking more feed wheat cargoes for September-December shipment. In Japan, similar events are taking place. In Vietnam, the preference is clearly for feed wheat over corn. The Philippines has covered its feed grain import needs through the next few months with purchases of Australian feed wheat earlier this year. All I am trying to say is be careful listening to all of those who want to say no one will really make the switch from corn to wheat...some already have and more will follow should corn prices continue to push higher and availability becomes scarce.

See the original article >>

The corn and wheat dilemma

by Gary Kamen

Last week July corn opened at 754 and closed the week at 787. July wheat opened last week at 772¾ and closed the week at 759¼. We saw that the WASDE report released this past Thursday was bullish corn and bearish wheat. There is definitely no problem with wheat supplies both worldwide and here in the United States. Here in the United States, supplies are above the 10-year average. Not so for corn. The increased consumption by China is keeping corn prices high. China grows 46% of world stocks and will not be exporting corn. Increased production by China does not come close to their increased consumption.

Last week July corn opened at 754 and closed the week at 787. July wheat opened last week at 772¾ and closed the week at 759¼. We saw that the WASDE report released this past Thursday was bullish corn and bearish wheat. There is definitely no problem with wheat supplies both worldwide and here in the United States. Here in the United States, supplies are above the 10-year average. Not so for corn. The increased consumption by China is keeping corn prices high. China grows 46% of world stocks and will not be exporting corn. Increased production by China does not come close to their increased consumption.
 

COT Data

On the Commercial Tracker below you see that Commercials had a slight drop in net-shorts and an increase in net-longs in wheat. With July corn almost 30 cents higher than wheat, livestock feeders could decide to replace a large portion of corn with wheat to bring down costs, increasing wheat demand and decreasing corn demand. If corn continues moving higher, there is no doubt that is exactly what will happen, so keep an eye on September (old crop) and December (new crop) corn. If we see new crop strongly moving up, you will want to keep an eye on how the feed market responds, especially because meat prices have come down. 

Commodity	12-mo low	12-mo hi	10-Jun	3-Jun
Cattle (feed)	-1,290	7,100	4,683	4,038
Cattle (live)	-73,179	2,046	2,046	-2,028
Hogs	-35,979	19,456	19,456	18,152
Corn	-413,915	119,389	-387,283	-395,045
Oats	-7,738	-867	-4,990	-4,554
Soybeans	-203,260	29,118	-112,280	-100,113
Soybean meal	-90,487	-32,915	-66,035	-47,366
Soybean oil	-117,444	32,394	-87,714	-74,009
Wheat	-32,577	74,161	15,534	3,103
Orange juice	-20,205	-6,588	-20,205	-19,463
Coffee	-47,729	-16,418	-16,418	-20,434
Cocoa	-41,808	8,586	-6,136	-9,605
Sugar	-221,694	-104,595	-123,748	-109,638
Cotton	-69,857	-12,970	-34,758	-36,258
British pound	-66,435	66,514	-7,171	-3,837
Canada dollar	-115,190	-13,109	-36,708	-59,332
Euro FX	-124,855	83,486	-59,176	-28,289
Japanese yen	-52,533	76,983	-12,461	8,687
Swiss franc	-42,387	23,460	-29,746	-33,121
US dollar index	-24,676	14,003	-5,517	-8,607
Mexican Peso	-140,414	-14,488	-96,395	-115,323
Australian dollar	-110,025	-10,793	-79,855	-78,193
S&P 500	-88,893	33,981	-55,890	-77,473
T-note -10 yr	-74,761	229,611	62,061	130,308
T-bond -30 yr	-43,324	88,803	6,676	10,601
Eurodollar	-1,179,414	81,781	-392,482	-261,942
Crude oil	-319,669	-25,439	-207,579	-219,619
Heating oil	-66,097	7,568	-45,946	-40,255
RBOB Gasoline	-85,987	-10,453	-62,224	-57,944
Natural gas	109,696	228,910	109,696	130,610
Copper	-36,201	1,793	-8,548	-7,533
Gold	-302,740	-193,197	-247,684	-240,508
Platinum	-34,909	-15,759	-27,239	-25,318
Silver	-65,413	-33,328	-33,328	-34,323

Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

If you need help understanding how to understand how to use the COT report to your benefit, please email me at Gary@crbtrader.com and put COT report in the subject line. Please include your name and telephone number in the email.

Fundamentals

Corn prices surged to an all-time nearest futures high of $7.93 a bushel after the USDA lowered its U.S. corn production estimate and cut its U.S. and global carry-over estimates.

Bullish factors include:

1. The USDA’s June 9 cut in its U.S. corn production estimate for this year to 13.2 billion bushels from last month’s estimate of 13.505 billion bushels as wet weather cut planted acres to 90.7 million from a May estimate of 92.178 million.
2. The USDA’s June 9 cut in its 2011-12 U.S. carry-over estimate to a 15-year low 695 million bushels from a May estimate of 900 million and the cut in its global corn carry-over estimate for 2011-12 to 111.89 MMT from a May estimate of 129.14 MMT.
3. IGC’s prediction that global corn inventories will fall to 111 MMT in 2011-12, or about 13% of consumption, the smallest stocks-to-use ratio since 1974.

Bearish factors include:

1. Speculation that livestock producers will switch to wheat from corn for their feed needs as the price of wheat has fallen to its cheapest relative to corn since 1984.
2. The USDA’s May 11 cut in its 2012 U.S. corn export forecast to 1.8 billion bushes, a nine-year low, as record high prices erode foreign demand.

Wheat prices fell to a three-week low, but remain within a wide six-month $2.37 a bushel range.

Bearish factors include:

1. The USDA’s June 9 hike in its U.S. winter wheat production estimate to 1.45 billion bushels from a May forecast of 1.424 billion.
2. Harvest pressures after the USDA reported that 10% of the U.S. winter wheat crop was harvested as of June 5, higher than the five-year average of 6%.
3. The resumption of Russian wheat exports starting July 1.

Bullish factors include:

1. The USDA’s June 9 cut in its 2011-12 global wheat production estimate to 664.3 MT from 669.6 MT in May along with the cut in its U.S. carry-over estimate to 687 million bushels from 702 million in May.
2. The prediction from Shanghai JC Intelligence that China may double its wheat imports this year to about 3 million tons as drought cuts its wheat output this year to 96.5 MT, below the 115.5 MT predicted by the USDA.
3. The action by the IGC to cut its global wheat production estimate for this year to 663 MMT from a May forecast of 667 MMT.

See the original article >>

Expect Market to Soften as Crop Conditions Improve

By: AgWeb.com Editors

This information is provided by Archer Financial Services, Inc. 800-933-3996.

The USDA Monthly Supply was the headline grabbing information this week in a week that saw corn values begin with a $.25 decline from last week only to end the week $.33 above last week’s close in July Corn.

What appeared to be a very mildly bullish report was met with limit gains on Thursday as the trade was surprised that the USDA chose its June S&D Report to make some most necessary changes. Anyone that is remotely acquainted with the grain markets and has only slightly followed Midwest weather conditions, has expected a downward adjustment in the planted acreage figures for corn. The only surprise was that the adjustment was made on June 9 and not June 30.

There may yet be another 500,000 acres shaved off of that figure in 2 ½ weeks. The real surprise may have been in the long overdue adjustment made in the world balance sheet as global corn carryover stocks declined by 17 MMT. Even this has been discussed in the marketplace and by national grain associations for the better part of 8 months. It appeared that the market was expecting a benign report and when surprise adjustments were made the reaction was an overreaction. 

The late-week rally provided a great opportunity for producers to hedge some new crop corn production above $7. As crop conditions improve, look for the market to soften and work back towards the middle of its recent trading range in preparation for what will most certainly be a critical and large price moving report in 20 days. Whether we are able to exceed this week’s highs and by how much will not be based on any information that we received this week, but by the data received in the June 30 Stocks and Acreage Report and how the weather plays out the rest of the summer. Make sure you are prepared for the volatility.

 

See the original article >>

Wheat needs to get used to playing second fiddle to corn

by Mike Verdin

Corn is making a better fist of keeping its premium over wheat in Chicago this time round. That looks a taster of their relationship for a while to come.

Sure, wheat made an effort on Friday to close its, unusual, discount over the rival grain, regaining some 10 cents per bushel of ground, July contract to July contract.

And its defence of its premium for further-ahead contracts looks pretty solid given the rewards for holding on to grain which were introduced last year by Chicago to close the gap between cash and futures prices.

But wheat had better get used to being overlooked for its apparently greater intrinsic value than corn, being considered, for instance, as a rule of thumb 15% better as a feed source.

Feed dynamics

Time is one factor on corn's side. The beginning of the winter wheat harvest in southern US states - and a better-than-expected start too – as well as in southern Europe will bring fresh supplies to the market, a depressant to prices, besides removing the need to price weather risks into harvested crop.

For corn, which in some US states is being harvested right up to Christmas, this cycle is later.

But demand is in the grain's favour too. Of course, corn's price should underperform wheat's if the grains' relative feed values were all that mattered.

They aren't. Domestic feed use of corn, while now expected by US officials to rise only by 10m bushels in 2010-11, is looking pretty resilient given that production of all major protein types has been cut back, compared with pre-recession levels. Many farmers are reluctant to give up on tried and tested corn-based feed formulas.

And recovery in cattle and hog prices from late-May lows will ease pressure for fresh herd reductions.

Ethanol hunger

Nor does it look safe to bet to assume exports will take all the rap.

The prospects of Chinese corn imports only appear enhanced now its inventories as of the close of 2010-11 have been pegged by the US Department of Agriculture at 53.7m tonnes – 5m tonnes less than previously thought.

And as for corn's use in making biofuels, it looks like requiring a significant drop in the oil market to throw bioethanol plants off course.

US ethanol production hit its highest since January at the start of the month, even with oil prices well below April highs.

Supply comparison

It is hard to argue with the USDA's assessment of both US and world corn stocks ending 2011-12 at historically tight levels.

That warrants quite some premium over normal prices. Certainly more than for wheat, for which supplies are distinctly more ample, and may prove even moreso if the benign early conditions for southern hemisphere producers follow through.

When corn rose above wheat in April, for the first time since 1996, the premium only lasted two days. This spell has already lasted twice as long.

Wheat may have to get used to more frequent, and lengthier, spells in second place.

See the original article >>

Speculators' bets on Minneapolis wheat hit record

by Agrimoney.com

Speculators' bets on rises in prices of Minneapolis wheat have risen to an all-time high, lifted by the prospect of the wet planting season cutting US, and Canadian, spring wheat production well below initial forecasts.

Speculators' net long position in Minneapolis wheat – that is, the advantage in positions which gain when prices rise over those that profit when prices dip – rose 8% to more than 27,000 contracts as of the end of May, Australia & New Zealand Bank said, following analysis of regulatory data.

Prospects for the North American harvest of the high-protein spring wheat that is traded in Minneapolis have dimmed with wet weather which, as of a week ago, had seen 68% of the crop planted, compared with an average of 95% by now.

In Canada, 73% of spring crops had been sown compared with the average of 87%.

Spring wheat sowings typically finish in mid-to-late May for most US states, and by June 3 for North Dakota, the top grower, leaving many analysts believing that seedings will not rise the 5% to 14.4m acres that farmers had planned, according to the US Department of Agriculture.

Minneapolis vs Chicago vs Kansas

The rise in speculative interest helped a rise in Minneapolis wheat to contract tops on May 26, a performance the spot July contract has since built on, hitting $10.90 a bushel on Monday, the highest since July 2008.

The record for a spot Minneapolis contract was set in February 2008, at $24.25 a bushel.

Speculators also raised their long interest in Chicago, soft red winter, wheat in the latest period, bit cut their expectations of rising prices of the hard red winter variety traded in Kansas.

"The lower total in Kansas may be the result of substantial selling of inter-market length held against the Chicago contract," Brian Henry at Benson Quinn Commodities said.

Furthermore, rains have stabilised prospects for much of the crop, which has suffered a dearth of moisture since late 2010.

Oil rush

Speculators also raised net long in Chicago corn, while remaining below record levels reached in autumn last year.

"Overall, speculators are still bullish on the grain market, with net longs in wheat and corn still elevated despite the volatility of recent months," ANZ said.

Speculators have also doubled their net long in soybean oil in two weeks, to 72,000 on ANZ calculations, and continued revivals in interest in cotton and sugar too.

ANZ has a broader definition of speculative interest than some other observers, calculating its data from "managed money", "other" and "non-reportable positions" criteria of reports published by the Commodity Futures Trading Commission, the US futures market watchdog.

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Wheat prices revive as Black Sea fears ease

by Agrimoney.com

The wheat market revived, as Ukraine trimmed its export forecast amid forecasts of dry weather, while Fitch Ratings added its voice to those expecting prices to stay high despite Russia's return to foreign sales.

Chicago wheat, which fell more than 7% in two trading sessions after Russia unveiled it would next month lift a ban on grain exports, recovered some ground on Thursday, adding 1.0% to $7.67 a bushel, for July delivery, as of 15:45 GMT.

In Paris, November wheat, the best-traded lot, stood 0.5% higher at E237.50 a tonne, with London's November contract up 1.5% at £190.50 a tonne.

'One key serious threat'

The revival came as Ukraine cut to 15m-18m tonnes, from 19m-20m tonnes, its forecast for grain exports in 2011-12, without giving a reason for the downgrade.

"They did not cite whether this decision was based on increased competition [following Russia's move] or lacking crops," US Commodities noted.

However, the downgrade comes amid growing concerns over dryness in the former Soviet Union.

Jaime Nolan at FC Stone's Dublin office termed the "building dry pattern of weather forecast" for the region as "the one key serious threat" to plans to exports.

"The market will watch nervously for developments in this area, with last year fresh in everyone's mind," when a drought devastated Russia's harvest, in particular, forcing the grain export ban from August.

US-based weather service WxRisk.com said that weather models "show Poland east into Belarus and the Ukraine looks warm and dry with no rains over the next seven days".

Levies instead?

Furthermore, there is growing speculation that Russian will impose some fresh measures, such as export levies, to curb the risk of a hike in food prices.

Russia's domestic wheat prices have risen more than 10% since the announcement of a resumption of exports, to close the gap with international prices which have been well over $100 a tonne higher.

Sergei Ignatyev, head of Russia's central bank, which on Tuesday raised interest rates by 0.25 points to 3.5% after inflation hit an 18-month high of 9.7%, said that Russia could, to soften the impact of the resumption of trade "temporarily, say for one year, introduce a mechanism of floating tariffs".

The Russian Grain Union has suggested a tariff on exports price above 7,000 roubles a tonne.

"Trade will note the protestations among some influential institutions in Russia regarding the free-for-all export plan coming in July," Mr Nolan said.

Ukraine, which ditched grain export quotas last month, has imposed duties of 9%, or at least E17 a tonne, on wheat shipments, 12%, or at least E20 a tonne, for corn and for barley a charge of 14%, or at least E23 a tonne.

'Elevated prices'

Separately, Fitch Ratings forecast that Russia's return to international markets was "unlikely to ease agricultural commodity price inflation", warning that this "does not necessarily mean there is be sufficient supply to offset losses in Europe and the US", where weather extremes are threatening crops.

Many analysts are forecasting European Union production losses of 5m-7m tonnes from dry weather, compared with a US Department of Agriculture figure of 138.6m tonnes, with some estimates below 130m tones.

Combined wheat exports from the EU and US were, even before the drought, some 50% more than those from Russia and Ukraine, and accounted for 35-41% of world shipments.

"So any reduction in exportable wheat from [America and Europe] will likely translate into tightened stocks and upward price pressure," Fitch said.

Corn vs wheat

"At the same time, global wheat consumption in 2011-12 is expected to be boosted by the continuing rise in demand for wheat-based foods in developing markets, especially Asia, and by increased use for feed to replace high-priced corn," the credit ratings agency added.

"This is likely to translate into elevated wheat prices for the rest of 2011.

Shorter-term, investors are awaiting the results of a 25,000-tonne Lebanese wheat tender to judge the level of prive competitiveness that Russia poses.

The wheat is scheduled to arrive on July 5, four days after Russia's export ban lapses.

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Russian wheat prices jump after export ban lifted

by Agrimoney.com

The rise in Russia's wheat prices since the lifting of the country's export ban may not - in practice - be as dramatic as has been made out, given merchants' strong bargaining power, a leading analyst has said.

The Russian Grain Union lobby group said that prices of fourth-grade milling wheat, the type used in exports, had soared by some 700 roubles ($25) to nearly 6,000 roubles ($215) a tonne since Vladimir Putin, the Russian prime minister, on Saturday unveiled the lifting of export curbs from July 1.

The rise could even be higher – at least, in terms of what farmers are asking for, Andrey Sizov, managing director of Moscow-based analysis group SovEcon, said, estimating the increase at 500-1,000 roubles per tonne.

"But that is an offer price. It is correct to say the offer price is going up, but that does not mean there is any trade going on at these levels," Mr Sizov told Agrimoney.com.

The Russian wheat market is being keenly watched abroad now that the country, a fierce price competitor, is returning to exports.

Iowa-based broker US Commodities said: "Russia currently has the cheapest wheat in the world. Russia's re-entry into the world grain markets will shift demand from the US in the coming months."

Strong hand

In fact, Russia's wheat market was likely to take a couple of weeks to adjust to the return to exports, as it did when the ban was announced last August, Mr Sizov said.

And prices then were likely to reflect merchants' bargaining power, after stocking up on grains since late April in expectation of a resumption in trade.

"They have enough stocks to export for now."

Indeed, it looked a buyer's market for now, with farmers needing to sell grains to raise funds for the rest of the spring sowings programme, and to finance the forthcoming harvest of winter crops.

"Merchants have strong negotiating power," Mr Sizov said.

'Grim yields'

The comments came as wheat prices continued to fall on international markets, pressed both by Russia's return to shipments and some rain in Europe, where dry weather has considerably reduced crop hopes.

Yields from the initial French winter barley harvest have come in at 3-4 tonnes per hectare, a result termed "grim" by one merchant, if not necessarily representative, so early, of the rest of the crop.

US meteorological service WxRisk.com said that weather models were indicating a "major rain event for France and Germany" next week.

"A major cold front moves into the northeast Atlantic on June 7 and as the front comes into France the UK and Germany this front brings in significant rains."

Australia & New Zealand Bank said: "In particular, this rainfall is timely for Germany, which is a later crop than in France, helping to limit yield declines at this stage."

Chicago wheat for July stood 1.1% lower at $7.74 a bushel as of 11:45 GMT, with Paris wheat for November down 1.4% at E234.50 a tonne.

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Wheat tumbles after Russia lifts grain export ban

by Agrimoney.com

Wheat tumbled nearly 5% in Paris as investors gave their first reaction to Russia's decision lift its grain export ban, forecasting that this year's harvest will be "quite good".

Paris's best-traded November lot hit E239.25 a tonne in early deals in response to Saturday's decision by Russia, renowned as a fierce competitor on prices, to lift from July 1 export curbs imposed in August, as the country's worst drought on record devastated crops.

Russia could export up to 20m tonnes of grain, if the harvest reaches its potential of 85m-90m tonnes, the Russian Grain Union, an industry lobby group, said on Monday.

As a further reason for caution, rain fell on some northern European areas, where a dearth of rainfall has helped spur a revival over the past two weeks.

"Germany has seen some rain these last few days and the three day forecast shows rain on the charts for south eastern UK, Germany and France," Jaime Nolan at broker FC Stone's Dublin office said.

Toepfer International said that showers this month had prevented yields in German grain crops falling below average levels, especially in the north of the country.

'Uncertainties remain large'

However, Toepfer, Germany's largest grain trading house, nonetheless forecast a drop to 22.8m-23.3m tonnes, from 24m tonnes, in the country's wheat harvest, the European Union's second biggest after France's.

The barley crop will fall to 9.0m-9.5m tonnes, from 10.4m tonnes, with rapeseed output set to fall to 4.4m-4.8m tonnes, from 5.7m tonnes - a decline of potentially more than 20% - reflecting irreversible damage from dry weather.

And Mr Nolan urged caution over the impact of the current rains. "It should be noted that areas across north western France will miss out and that the predicted rainfall is not very heavy across most parts," he said.

And Agritel, the Paris-based consultancy, said that the lifting of Russia's grain export ban had been "already relatively well integrated" into prices, having been the talk of the market for the last month or so.

"It should therefore have a limited impact on the market as uncertainties remain large yet."

Paris's November wheat contract had recovered some ground to stand at E242.&5 a tonne in lunchtime deals, down 3.1% on the day. Rapeseed, which was not covered by Russia's export ban, was E0.25 lower at E493.75 a tonne, on track for what would be its first fall in 12 trading days.

US markets are closed for the Memorial Day holiday, with London trading also shut for a bank holiday.

'Satisfactory condition'

Russia's decision to lift its export ban follows an improvement in prospects for spring sowings, after a late start to summer caused one of the slowest starts on record, with plantings now at 24m hectares, some 10% higher than a year ago.

Furthermore, rates of cold weather damage during the winter were relatively low.

"The condition of the winter crop is satisfactory and we believe that this year the grain harvest will be quite good," Russian deputy prime minister Viktor Zubkov said.

Russia expects to harvest 85m-90m tonnes of grain this year, up from 61m tonnes last year, if below the bumper crops of 97m tonnes in 2009 and 108m tonnes in 2008.

'Ever-greater stocks'

The lifting of the curbs also follows lobbying from grain traders alleged to have built up hefty stocks at ports in anticipation of a resumption in trade.

"It's clearly in the interest of Russian traders and farm bodies to talk of ever-greater stocks blocking up the silos as harvest approaches in order to get the ban lifted," a report from a leading European commodities house on Friday said.

However, the politics of the situation are clouded by the prospect of parliamentary elections in 2012, and a presdential vote in 2012, leading some observers to predict the government faces a difficult balancing act between keeping the agricultural lobby onside, but keeping food price inflation in check.

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