Grains Continue Retreat in the Face of Weak Exports

Follow through selling hit the grain markets overnight with soybeans off 10, wheat off 8 and corn off 2 in the overnight session.

Thursday’s export sales data from the USDA started the selling as all three grains showed weekly tallies that were well below trade expectations. For corn, the data continues to be extremely bleak as USDA projects 2012/13 exports to be off 25% for the year, but year-to-date business from the 4 largest buyers (Japan, Mexico, China and South Korea) is off 45%.

For soybeans, China continues to buy U.S. beans but their pace of purchases has definitely slowed in recent weeks. News from Argentina also added to the bearish sentiment. The Buenos Aires Grains Exchange said on Thursday that they may end up increasing their soy area estimate for the 2012/13 season as they expect barley areas are very likely to be planted to soy due to excess moisture during the planting season, which would mean an increase in our nationwide soy area estimate.

In wheat, sluggish export business and continued competition from international players keeps U.S. prices on the defensive the last two days. European Union licenses to export soft wheat increased by 437,781 metric tons for the week ended November 27, EU data showed Thursday. This takes total EU wheat exports, 22 weeks into the 2012-13 marketing year, to 7.26 MMT. In the U.S., total export commitments are at 15.9 MMT versus last year’s total of 17.8 MMT at this time of year, a 10.4% drop. By comparison, USDA is forecasting exports to rise 5% for the year.

Ethanol Production Continues to Stumble

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The overnight session saw soybeans recover their losses from Wednesday’s day session, while corn and wheat were mostly unchanged.

On Wednesday, the EIA released their weekly ethanol report showing production at 803,000 barrels per day, off from last week’s production of 811,000 barrels per day. Persistently weak crush margins continue to put pressure on ethanol plants, causing production levels to be off from last year by a considerable margin. Grain Hedge projects total corn use for ethanol to be 4,375 mb for the year, well below USDA’s current annual forecast of 4,500 mb.

For soybeans, prices continue to gain ground after it was announced that China bought 290,000 tonnes from the U.S on Wednesday. A statement by China’s top food policy director overnight reinforced the problems with China’s food production, stating that persistent farm land and labor shortfalls will continue to force China to meet its growing food consumption needs through imports.

In the wheat market, global crop problems continue keep prices firm. Russia’s deputy foreign minister pegged the 2012/13 wheat crop at 70 MMT off from last year’s level of 94 MMT and revised lower from their previous forecast of 71 MMT. In Brazil, a key miller noted that they will be uncharacteristically getting wheat from Northern Hemisphere suppliers this year due to poor crop conditions in Argentina.

Markets Retreat Overnight

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Grain futures were mostly lower overnight after notching strong gains in Tuesday’s session. Continued concerns about the U.S. drought and crop problems in South America have given new life to wheat and soybean futures.

Dec wheat is expected to retest resistance at $8.73 per bushel, following a retracement to $8.65. The retracement has been triggered by the resistance, which is provided by the 50 percent Fibonacci retracement on the fall from the Nov. 9 high of $9.17 2 to $8.30.

In Ukraine, the Ag Minister announced overnight that the country would not limit its exports at 5.5 MMT for the year as previously stated as fresh data suggested they export more than the previously announced limit. Although there was no guidance on how much higher their export business could go, some traders put the total for the year at only 6.5 MMT as production shortfalls and tight stocks will limit overall export volume.

Domestically, concerns are mounting for a possible river closure south of St Louis on the Mississippi river. Barge operators and shipping groups on Tuesday asked U.S. President Barack Obama to declare a state of emergency on the river and direct the Army Corps of Engineers to keep the drought-lowered waterway open to commercial traffic to avert an economic catastrophe. At current projections, water levels are expected to fall to record low levels between St Louis and Cairo by mid-December, only a couple of weeks away.

In South America, weather problems continue to underpin the markets. Corn has gained ground in recent session from fears that rain in Argentina will limit the corn plantings and that the country will not reach its forecast corn area. Rains are forecast for Brazil’s soybean center-west plains this week, meteorologists said, but southern growing regions are set to remain dry, leaving two of the largest producing areas drier than normal in November. Analyst Oil World suggested soybean prices are too low and do not reflect the possible risk to tight global supplies if the South American soybean harvest in 2013 suffers weather damage.

Soyoil Surprise Business Lends Support

Grain futures continued their strength overnight with beans continuing to lead the recovery posting a 10 cent gain in the overnight session. Corn and wheat also moved higher with corn up 4 cents while wheat posted an 8-cent advance.

Although traders have yet to see new export business for soybeans of late, soyoil purchases by international buyers has been brisk. In just under two weeks, U.S. exporters sold more than 40 percent of the soybean oil targeted for export in the entire marketing year, in what trade sources said on Monday signaled a scramble by end-users reacting to dried-up supply in South America.

For wheat, USDA’s last Crop Progress report of the season showed more deterioration in the winter wheat crop. The 33% good-to-excellent rating of the crop is the lowest ever seen at this time of year, and is off from last year’s rating of 52%. Although fall conditions can have little to do with final yields next spring, it does suggest that weather in the spring will be ever-more critical to achieving normal yields.

For corn, export business continues to be quiet and end-users struggle getting supplies out of the hands of farmers. With futures sitting at the $7.50 area, ethanol processors continue to face eroding crush margins. The recent runup in corn futures has pushed prices up 32 cents in the last week, but ethanol prices have only gone up 15 cents in corn equivalent terms, putting more pressure on ethanol profitability.