US market is unchanged on the week, but really that doesn’t tell the full story! Continued weather concerns emanating from Argentina have spiked the soy complex higher, especially soymeal, with spill-over support entering the grain pits. Additional support initially came from reports of drought conditions expanding across the US Southern Plains, which are seen to be potentially stressing the winter wheat crop, although the North West forecast of increased rain chances over this weekend has cooled the wheat market, trimming earlier gains.
EU prices, although about a euro lower, are actually $4/t higher on the week, as a weakening US$ exerts pressure on MATIF. European cash prices have firmed, not only as a result of the recent Saudi tender, but also on further rises in Russian prices, again on export demand (Egypt). Russian wheat exports were placed a/o Dec 31st at 21.3mln t, up 60% on last year, and with favourable weather expected to continue, it is envisaged Russian values will remain the benchmark for other origins. EU wheat exports continue their slow grind, reported as 12.6mln t (soft wheat) being shipped a/o Feb 6th, down 17.5% on last year. The current pace prompted the French farm office to reduce its non-EU soft wheat exports for the fourth consecutive month, to 9mln t, from 9.3mln previously, raising closing wheat stocks to 3.25mln t in the process.
UK LIFFE is trading about £1.50/t higher on the week, despite a move back above $1.40 against the US$. As we have mentioned in previous reports, while LIFFE seems to be currency and politically driven, day-to-day physical prices show little, if any, movement. Official data for December showed wheat exports at their lowest monthly level since July, at just 25,000t, with imports reported in excess of 115,000t. With uncertainty surrounding the actual date, if at all, of the recommencement of operations at one of the major UK ethanol plants, the UK balance sheet is growing heavier by the month, leaving the potential for a squeeze on the forward carries. This leaves nearby values still looking attractive to growers.
In summary, it’s all about weather, albeit current weather issues in South America, or perceived weather issues in the US in relationship to new crop production. Funds, by the end of this week should be running with a long book on soy, but a a declining short position in corn and wheat. Until more details can be obtained on actual Argentine losses, we expect the soy markets to stay on the ‘buy side’, but how much sentiment spills over into the grain is another story, as these markets have differing agendas.