Tim Hannagan: Fewer crops, higher markets
Thursday’s storm of reports began with weekly exports sales report, telling us how much of each grain was sold for future shipment, corn exports were 1.200 m.m.t. old and new crop sales. The new crop year for corn and beans starts September 1st.
So, they combine the two to get a good export feel. Key Asian customers that account for 70% of our exportable feed grains were in for 625 t.m.t. of the total. It’s not an overly bullish number but consistent with a record export pace and a good number prior a U.S.D.A. crop report when importers usually back off. Soybean exports, old and new combined were 2.607 m.m.t., with key world buyer China in for 1.762 of the total, and the highest since June 2008. The last two years China backed off on their aggressive buying spree in August and September as the U.S. crop would come to early harvest in September putting large quantities of beans available at harvest low prices. But, this year China has picked up their buying with purchases of 2.700 m.m.t. the last 22 days.
I suspect they fear an increase in demand for U.S. beans from foreign drought stricken countries who normally don’t buy driving prices higher into early harvest, when prices should be lower. In the 1970’s when a U.S. export sales by U.S.D.A. said to UNKNOWN DESTINATION, it meant Russia. They wanted to keep their intent as quiet as long as possible to avoid speculators driving up prices. The last three years all the UNKNOWN sales have ended up in China. Since august 1st we have seen the UNKOWN DESTINATION stamp increase four fold. It’s been in beans, wheat and corn sales. This has talk that some of it could be Russian purchases. After all, if drought is cutting their wheat crop in half along with hay and potato production, we have to assume corn and bean production for domestic use is equally as damaged. The drought in Russia and the historic floods in India, where their rapeseed crop for high protein is in jeopardy all will lead to larger U.S. exports but how much can’t be figured out easily.
The wheat exports were 1.329 m.m.t. a new marketing year high and the highest weekly sales number since September 2007. With the number two and three world wheat producers, India and Russia both suspending exports the U.S. becomes the world’s primary port of origin for quantity and quality wheat. This now won’t change before June 1, 2011 when foreign port new production comes in sight. Beans and wheat both are seeing some panic buying as world production remains in question. After all it’s only too fresh in their minds of the 2008 historic rally that had importers that hesitated paying $12 plus wheat, $8 corn and $12 beans.
Foreign importers can cancel long term purchases if prices fall without penalty in the world market. So, expect mountainous purchases as insurance against another potential mega fund buying spree in the futures. The market is trading fear now before fact. Seasonals point to lower prices into the beginning of U.S. grain harvest in September. But, if the LA-NINA inspired drought continues into late September in Eastern Europe.