Ukraine tensions may encourage grain 'hoarding'

Soycomplex

Beans surged to the best closing levels for a front month since September, and the highest close on nearby Mar 14 ever. Fund money continues to pour into grains, suddenly disenchanted with equities, with the Commitment of Traders report revealing them now sitting on a net long of over 208,000 contracts as of Tuesday night. They were judged to have been further net buyers of around 5,000 contacts today.

"Soybean ownership in the western belt continues to struggle with the idea of a higher board as there are very few opportunities offered on the cash side," noted Benson Quinn Commodities. Highlighting that cash prices have failed to keep pace with the rapid rise in the futures market in recent weeks. With a big report coming up from the USDA on Monday, you'd have thought that some profit-taking and consolidation might have been in order at the end of a week where soybeans have increased in price every day, but not a bit of it.

The very strong pace of US soybean exports and sales appears to have the market thinking that the USDA has little room to manoeuvre in their well-known capacity to spring a bearish surprise for beans on Monday. With total net sales commitments already at over 107% of the USDA's target for the season, these can only be increased, not reduced surely? Even if there are no more sales (and no more cancellations), the USDA would need to adjust soybean exports higher by 104 million bushels.

This would leave ending stocks at only 46 million bushels. That's way below their comfort zone minimum of 150 million. Consider here too that this assumes that the 2012/13 carryout of 141 million was correct - many think that it was less than that - so the volume of beginning stocks that we started 2013/14 with was possibly overstated. Meanwhile the US domestic crush continues to see strong demand, they can hardly cut that surely? On top of that, last month's USDA estimate for a Brazilian soybean crop of 90 MMT is now at the high side of trade estimates, some of which are as low as 85 MMT, so a downwards revision to say 88-89 MMT could be expected. Monday's report sees traders estimating the USDA cutting US 2013/14 soybean ending stocks to 141 million bushels, versus 150 million last month. The USDA attaché in China today estimated their 2014/15 bean imports at a record 72.0 MMT versus 68 MMT this season. Mar 14 Soybeans closed at $14.57 1/2, up 20 cents; May 14 Soybeans closed at $14.57 3/4, up 19 3/4 cents; Mar 14 Soybean Meal closed at $465.00, up $6.60; Mar 14 Soybean Oil closed at 44.09, down 18 points. For the week, nearby beans added 43 1/2 cents, with meal down $2.90 and oil up 257 points.


Corn

The corn market fell a little, heading into the weekend, but still managed to finish at the highest levels on the Mar 14 weekly chart since last September. The latest Commitment of Traders report shows funds adding a very meaty more than 70,000 contracts to their newly acquired net long position in CBOT corn for the week through to Tuesday night. They now sit on a net long of over 158,000 contracts.

"The COT report showed the commercial short jumped from 294.4 thousand to 364.4 thousand contracts week over week, a good reflection of the ample amount of producer selling that has occurred throughout the rally," said Benson Quinn Commodities. Again this appears to highlight the fact that this is very much a fund buying led rally. Unlike soybeans, maybe the trading community thinks that the USDA might have a bit more "wiggle room" at their disposal to spring a bearish corn surprise on Monday, hence today's profit-taking and book-squaring? The trade sees US corn ending stocks averaging 1.488 billion bushels on Monday, from within a range of estimates of 1.431-1.656 billion and the February USDA estimate of 1.481 billion. The USDA seems to be in a position to raise exports by 25-50 million bushels, total commitments so far are nearly 92% of the USDA's target for the season which is only halfway through.

World corn ending stocks are seen falling around 1 MMT from last month to 156.27 MMT, from within a range of estimates of 154.80-158.40 MMT. The Argentina corn crop has an average estimate of 23.35 MMT versus 24 MMT last month. The Brazilian corn crop is seen at 69.03 MMT versus 70 MMT in February. CONAB's Brazilian crop estimates come out on 12 March. Heavy and unwanted rains are in the forecast for this weekend in Mato Grosso, Brazil, with up to 3 inches with 90% coverage. That should further hamper the soybean harvest and getting the remainder of the "safrinha" corn crop into the ground. The Buenos Aires Grains Exchange said that the corn harvest in Argentina is 2% done versus 8.4% a year ago. Mar 14 Corn closed at $4.81, down 4 3/4 cents; May 14 Corn closed at $4.89, down 2 cents. For the week Mar 14 corn was 23 1/2 cents higher.

Wheat

The wheat market closed around 4-10 cents higher on the day, with the erratic front month Mar 14 Minneapolis wheat displaying the most strength in very thin trade. The Commitment of Traders report shows fund money continuing to slash their Chicago wheat short, which now stood at only 6,000 lots as of Tuesday night. Monday's USDA report is likely to be more about corn and soybeans than it is for wheat. Trade estimates for US 2013/14 wheat ending stocks are averaging 570 million bushels, from within a range of estimates of 549–615 million and the February USDA estimate of 558 million. For world wheat ending stocks the average estimate is 183.65 MMT, from within a range of estimates of 182.10–185.00 MMT and the February USDA estimate of 183.73 MMT. Paris wheat futures jumped to the best levels since last May on ideas that the situation in the Black Sea might encourage further EU wheat exports.

These are already running at 20.8 MMT versus 13.7 MMT a year ago for soft wheat. Reuters report that the southern Crimea region will vote on March 16 on whether to join Russia in a poll condemned by Kiev and the West. Despite grain exports out of Ukraine continuing virtually as normal, there's some speculation that the current tensions, and rapidly falling local currency will encourage "hoarding" of unsold grains as a hedge against inflation, similar to the situation that we've seen in Argentina. There is also some debate as to where some Ukraine farmers will find the money to fund spring plantings and farm inputs such as fertiliser and agrochemicals, potentially harming yields later in the year.


Concerns for US winter wheat remain, although despite a sharp deteriorating in good/excellent ratings across the winter, current levels are still significantly better than a year ago. Reuters report that the Canadian government have issued the newly nationalised railways there with a minimum "quota" for the volume of grains they must move per week to clear the huge backlog that exists, or face financial penalties. Mar 14 CBOT Wheat closed at $6.46 1/4, up 4 3/4 cents; Mar 14 KCBT Wheat closed at $7.15 1/4, up 9 cents; Mar 14 MGEX Wheat closed at $7.52, up 10 3/4 cents. For the week, Chicago wheat added 47 1/4 cents, with Kansas up 38 1/4 cents and Minneapolis adding 81 1/4 cents.