UK November wheat is in No Man’s land at £154-7, it is almost exactly in-between last year’s top of £173 and low of £136. Farmers want the psychological minimum of £150/t. Old crop wheat has dotted around £175/t since mid-March.
US maize is tight as cash prices are nearly $1/b higher than July futures, and the harvest normally starts in September. How tight is not known, as the USDA probably massages its figures; this week’s report was bearish to maize, neutral to wheat, and bullish for soya. Brazil is offering maize from its record 67mt crop (57mt last year) at $30/t below US prices for July-August; and it expects to export a record 12mt. If the $30/t differential to Chicago is maintained, then Brazil will effectively limit the expected price spike in July, and it could even be a more cost-effective source than domestic supplies for livestock and bioethanol producers in the south east. The US maize crop is planted in April/May, and the weather scares usually start in July ahead of the September harvest. The NOAA (National Oceanic and Atmospheric Administration) believe that there is a 50% probability of an El Nino event in the second half of this year. El Nino causes droughts in Australia (harvest in Oct/Nov) and floods in South America (planting maize and soya in Sep-Dec). Needless to say, the world needs perfect weather conditions this autumn to ensure adequate supplies of wheat, soya and maize for next year; so a potential El Nino is giving the bulls plenty of head room.
Soya beans rallied sharply last week on the back of China’s sizable purchases, amounting to 4.88mt in April and 5.28mt in May. Their demand for soya keeps rising, as the growing middle class satisfy their hunger for meat. They currently use about 57mt / year, and estimates for demand by 2020 range from 85 to 130mt, which is only good news if you happen to be a soya farmer. Allegedly Brazil’s aggressive exporting campaign in March to June means that its exports (expected to be 37mt for the season) will occur at a much slower pace to next March; it is reported that farmers have already sold about 30% of new crop to try and lock in profits. Argentina’s soya crop continues to diminish. Thus the world will be more dependent on US soya beans from Sep12 to Feb13 than usual, and any weather scares will only inflame price movements. The current theory is that US new crop soya must be price-rationed to prevent the US from digging into its soya reserves, otherwise it may have to import South American soya next spring and summer. In the UK, Non-GM soya has broken through the £400/t barrier and is about £406 delivered to the mill; AO soya is about £368 on the same basis. Never ones to miss an opportunity, Russia has announced it will double its soya production in the next 5 years (the ex-Communist state has a highly-developed sense of capitalism). That it grew any soya at all (1.5mt last year) is a surprise! Russia seems to be pursuing its strategy of trying to avoid buying anything from the US (chicken, soya, etc).
Game, Set and Match to the PIGS, as they have now all been bailed-out. Who is next and what’s the line-up? Cyprus, Portugal for the second time? Italy? Greece holds its elections this Sunday (Jun 17th). So if the results are known on Monday, markets will open a ‘bang’, therefore we expect a certain amount of defensive positioning this week. That may be why the Bank of England announced £80bn funding for lending and six month UK bank liquidity scheme this week.