Morning Comments: July 20th 2011

As expected both e session and day session bids at Chicago were sharply higher for corn futures. Corn futures were higher from the open and came within a few cents of the daily limit before slipping back to almost unchanged by the close, with Dec 11 up only 10.25c/bu.

There appears to be a lot of resistance around 700c/bu for corn on the nearby contracts while support is suggested to be as high as 680c, so without further bullish or bearish news US corn appears to be range bound for the short term at least.

CBOT wheat futures followed corn higher but also traded on the back of the heat wave having an impact on spring wheat, the lateness of the spring wheat crop in the US would mean the heat is coming at a crucial growth stage but it may also assist with quality. Kansas and Minneapolis once again managed better gains than the Chicago contracts and highlight the focus is on premium wheats at present.

European grain futures were higher across the board with Paris milling wheat posting stronger gains than the London feed wheat contract. Interesting to note that ICE canola was softer whilst Paris rapeseed was a similar amount firmer. To say that US wheat prices are reflecting the global market would be a gross exaggeration of prices, all of the major tenders of the last few weeks have gone the way of Russia and with the recent inclusion of Ukraine on the list of Egyptian buyers would suggest there is less chance of global values moving higher to meet the current US values. In saying this it would also confirm Paris milling wheat futures are also high, they reflecting about a $20 premium over US prices but this is more than likely the natural freight advantage. With better weather expected across the US next week it is hard to see upside, in US futures at least.Probably a bit of a carbon copy of yesterday for today, the low is now situated just off the central NSW coast and should push cloud up the Hunter and onto the Plains today. The low is expected to intensify as it moves east so expect winds to pick up along the coast and east of the ranges. Falls along the coast should clear to the NE by Monday leaving another dry week ahead.

Afternoon Comments:

Prices for old crop are higher across the board this afternoon. Realisation that the east coast wheat belt is sitting at the cusp of a drought may have a few buyers spooked. Subsoil moisture is greatly depleted across most of NSW and rain is needed across most of the major growing districts in the next 3 - 4 weeks to ensure the crop makes it past tillering.

Old crop wheat on the track is up $7 to $10 while sorghum has struggled to put on much today.

Delivered Newcastle or Tamworth sorghum prices remain soft and under seller trigger values but track bids moved up $3 to $218 less rail in the Newcastle zone, still a few dollars under most sellers ideas or starting price but it has attracted small parcels from the softer sellers throughout the day.

As I write the dollar is flat and just over 1.07c while both wheat and corn futures on the Chicago e session are up a little, the ASX milling wheat contract has changed hands at $260 but is currently bid at $256 against a $258 offer to sell, all up about 12kt has traded in the Jan 12 contract so far today.

I read a market report that suggested if US corn yields drop below 155bu/ac than the bearish June report data from the USDA would become irrelevant as supply would see the ending stocks to use ratio drop to below 4%.

I use a theory that predicts US corn yield according to the weekly good to excellent rating on the crop. Currently the good to excellent rating is 66%, which is conducive to an average yield of roughly 161bu/ac, in order to see yields fall to sub 155bu/ac the avg rating will need to fall by as much as 9% in the next few weeks, a big ask really.