Grain comment: Tricky call for grain direction


IT'S time to take stock people. Global markets have copped a dead-set pizzling during the past six to seven weeks - with CME corn and wheat futures now down about US75 cents a bushel and US150c/bu from their respective early May highs.

IT'S time to take stock people.


Global markets have copped a dead-set pizzling during the past six to seven weeks - with CME corn and wheat futures now down about US75 cents a bushel and US150c/bu from their respective early May highs.

In Aussie dollar terms, we are talking roughly $32 a tonne for corn and $60/t for wheat based on the CME futures move - which has been reflected to varying degrees in local markets depending on regional production outlooks and balance sheet considerations.

For example, old crop sorghum bids have dropped about $30/t in the Brisbane zone and $20/t in the Gladstone zone in the specified time-frame - whereas the new crop sorghum bid is virtually unchanged.

Meanwhile new crop Australian Premium White (APW) multi-grade wheat bids are down about $20/t in the Gladstone, Brisbane and Newcastle zones compared to a $40/t fall in Port Kembla and more like $50/t in South Australia.

Clearly, these relative moves are in line with early seasonal developments with continued sub-par conditions in northern NSW and Queensland generating an expanding price premium for the better supported southern Queensland consumptive market.

Regardless, these markets have all moved lower to varying degrees, and whilst nobody likes to attempt to catch a falling knife, at some point, you've got to ask yourself when enough is enough.

On that score, it does feel like the easy work to the downside has been done, but the message is mixed in terms of the technical and fundamental factors at play from here.

For the all-important US corn market, the December CME futures contract is now within spitting distance of its January low of US435c/bu.

This level will potentially form at least an initial support zone for technical traders - although the steep downtrend line on the price chart suggests it could be vulnerable.

Fundamentally, the corn downside that precipitated from mid May accelerated as fears of a late US plant subsided and the market realized the crop was going in the ground in good time and excellent soil moisture.

In the last week, too much rain, storms and flooding in areas throughout the Midwest have generated concern that significant corn and soybean acreage could be damaged or lost.

Hence, while it's not as clear cut as it was in mid-May, there has been a slight shift in weather sentiment which may reduce the near term appetite for further aggressive short side market positioning.

If the US weather stabilises, however, as Australians we stand by the axiom that "rain makes grain" and "don't stand in front of the train if you've got a brain".

Wheat is similarly tricky to call.

Fundamentally, we've seen some good demand-side signals in the last week, particularly from East African and Middle East markets.

Egypt bought 180,000t of Romanian and Russian wheat at $US251/t to $US253/t (free on board), while Saudi Arabia bought 780,000t of soft and hard wheat priced from $US290/t to $US309/t (cost and freight).

The Saudi purchase was sourced from offers of Australian, European as well as North and South American origins.

This buying inquiry is partly price related, but is also symptomatic of a requirement to top up third quarter coverage in some markets.

Closer to home, however, our traditional South East Asian and North Asian consumers appear well covered through until at least October.

Another supportive fundamental point to note is that after the recent fall in prices, Russian wheat is now getting much closer to the $US240/t (FOB) equivalent value at which the Government will enter the market for "intervention stock".

Technically, this lines up reasonably closely with the circa US20c/bu that December CME wheat would need to fall to reach its January low of US577c/bu.

From a supply side perspective this needs to be balanced against "growing" global new wheat production estimates, although recent adverse weather in several growing regions - and the potential for more - suggest a possible tightening in the global milling wheat balance sheet, with a more burdensome feed wheat profile.

Time will tell on this.

All of the above factors are giving global grain traders plenty to chew on, as if the upcoming US Department of Agriculture June 30 stocks and acreage report wasn't mind bending enough.

Matthew Pattison is the trading manager at Pentag Nidera.


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