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News Flash: August 7, 2014

INDUSTRY

GRAINS-U.S. wheat eases from 1-month top; corn, soy also lower

Corn and soybean prices have declined as both markets continue to be pressured by the prospect of huge U.S. harvests this year. Favorable weather in the U.S. Midwest has fueled expectations that the USDA will raise its estimates of corn and soybeans in a monthly report due next week. “The world has moved into a period of surplus in the corn market, so the function of the market has become to weaken farmer margins and discourage production,” Macquarie analyst Christopher Gadd said. Chicago Board of Trade December corn was off 0.7 percent at $3.71-1/2 a bushel while November soybeans eased 0.3 percent to $10.76-1/2 a bushel. “There is a chance that (soybean) demand can respond (to low prices),” Gadd said, adding the market’s carry structure could encourage consumers to hold stocks. “Low prices are the key driver to higher demand – if prices rallied, this demand outlook would be weakened.”Reuters

 

SOYBEAN

Soybean Futures Fall as Rains in U.S. Midwest Seen Boosting Crop

Soybeans fell for the second time in three sessions on Chicago Board of Trade on speculation that rains will aid crop quality and ease threats from dry weather in the U.S., the world’s top grower. Showers will increase this week throughout the growing region, favoring soybean-pod and corn development, Commodity Weather Group said today in a report. Below-normal temperatures will help yields in drier areas, according to the forecaster. “The month of July was abnormally cool, and the crop is so well ahead of normal,” Sue Martin, president of Webster City, Iowa-based Ag & Investment Services Inc., said in an interview. “That’s perceived as excellent conditions. All of that is what’s weighing on the market.” Soybean futures for November delivery retreated 1.3 percent to close at $10.6575 a bushel on the Chicago Board of Trade. Futures touched $10.54 yesterday, the

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lowest since October 2010. Prices have slumped 18 percent this year. Seventy-one percent of soybeans in the main U.S. growing areas were in good or excellent condition as of Aug. 3, unchanged from the previous week and the highest for the date since 1994, based on a USDA report. About 73 percent of corn crops received the top ratings. U.S. soybean production this year will rise to a record 3.865 billion bushels, more than the 3.8 billion estimated by the USDA last month, INTL FCStone Inc. said yesterday. The USDA will update forecasts Aug. 12.Bloomberg

 

CORN

Twin Corn Ears Expand U.S. Yields With Bin-Busting Crop

The second ear of corn emerging on stalks across farms in Illinois is another sign that the U.S. crop this year will be a bin-buster. Two months before the harvest, stalks exceed 10 feet, with deep roots and ample soil moisture. This year’s bumper corn crop is so unusual that Iowa, the biggest corn-growing state, probably will produce as much as 2.8 billion bushels, topping the all-time high from 2009, Agriculture Secretary Bill Northey said. U.S. production will set a new record of 14.5 billion bushels in 2014, AgResource Co. estimates.Bloomberg

 

PALM

Higher palm oil output to cap prices, depending on El Nino

Palm oil production in Indonesia and Malaysia could speed up in the final months of this year, keeping a lid on prices, although some market participants continue to worry about a potential El Nino plus tree stress in Malaysia. Crude palm prices in Malaysia have tumbled more than 15 percent this year, due in part to a bumper harvest of rival soybeans. On Monday the benchmark October contract was down 1.1 percent at 2,260 ringgit ($706) per tonne at mid-day. The El Nino weather phenomenon, a warming of sea temperatures in the Pacific, can lead to great amounts of rain in certain parts of the world, while causing droughts in others, damaging crops and the food supply. Concerns about an El Nino made many cautious about the palm crop initially this year. However, Malaysia, the second-biggest producer, churned out 9.1 million tonnes of crude palm oil between January and June, up from 8.4 million in the same period last year. “Output will be good. It is already showing signs of double-digit growth,” said a trader with a Malaysian commodities brokerage. “In another two or three months, we’re going to get close to 1.9 to 2.0 million tonnes of stocks.” Malaysian stocks stood at 1.66 million at the end of June. The Malaysian Palm Oil Board, the industry regulator, sees output hitting a record 19.5 million tonnes this year versus 19.2 million in 2013. However, not all participants expect such a surge. Some planters say output will be capped by the delayed impact of a short drought earlier this year. “Production will pick up but the big question is by how much,” said Carl Bek-Nielson, chief executive of Danish-Malaysian United Plantations. “We don’t expect a bumper crop in the second half as a function of the very dry weather and the stress the palm trees were exposed to in the first half,” he added. Fears of an El Nino have not entirely disappeared, either. The Australian Bureau of Meteorology said on July 29 that Pacific Ocean temperatures had eased in recent weeks but that an El Nino could not be ruled out, even though it was “increasingly unlikely to be a strong event” if it did occur. “Overall, output could be higher, but it is subject to the El Nino effect,” said Puru Kumaran, chief financial officer at IJM Plantations Bhd. “We really don’t know whether there could be an effect that could hit towards the last quarter of the year.” The outlook for crude palm oil output in Indonesia, the world’s top grower, has turned round recently. The Agriculture Ministry said in mid-July that output in 2014 had initially been forecast to drop 15-20 percent due to the predicted El Nino, but now it was expected to reach 29.5 million tonnes, up 6.3 percent from 27.8 million in 2013. Indonesia and Malaysia together account for 85 percent of the world’s palm oil. Bumper supplies of soybeans for crushing into soybean oil could depress prices of the rival edible oil and turn price-sensitive buyers away from palm oil unless its prices fall, too. “There’s a lot of competition from soybean oil. It really depends on the prices. If palm is priced cheap enough, the demand will be there,” said Ivy Ng, an analyst at CIMB Research in Kuala Lumpur. Refined palm olein currently trades at a discount of about $90 to soybean oil, compared to about $60 at the start of 2014 and $300 in January 2013.Ng expected palm prices to trade between 2,300 and 2,600 ringgit a tonne for the rest of the year, a little above the current level. “I don’t think it can break out of that range unless something drastic happens to the weather in the U.S. or in the palm oil region,” she said. Other analysts have also turned more bearish. Kenanga Investment Bank’s Alan Lim has slashed his forecast for average prices in 2014 to 2,500 ringgit per tonne from 2,800 ringgit, citing lower estimates for soybean oil prices. ($1 = 3.200 Malaysian Ringgit). Reuters

 

CANOLA

Canada Canola Crop Proves Resilient as RBC Sees Price Declines

The Canadian canola crop has been resilient this season. Yields will probably be the same as last year, even after heavy rain dumped 2 inches (5.1 centimeters) of water on plants in June. Dry conditions in July helped some fields recover from record rainfall the prior month across growing areas in Canada. Improving weather combined with a better production outlook for fields that were outside the flood zone means that this year’s yields are poised to be higher than the five-year historical average, a CWB crop tour revealed last week. Ample supplies may drive futures to a four-year low, RBC Dominion Securities forecasts. Even after the storms and spring-planting delays, about 71 percent of the crop is rated in good-to-excellent condition in Saskatchewan, the nation’s top producer, provincial data show. Production will probably reach 14 million metric tons this year, according to Phil Speiss, commodity futures broker for RBC Dominion in Winnipeg, Manitoba. While that’s down from last year’s record 18 million tons, it’s higher than the 13.9 million collected in 2012. “It’s nowhere near last year, but it’s a good sized crop,” Speiss said. Canola may fall to as low as C$400 a metric ton, if U.S. weather favors the soybean crop this month, according to Speiss. That would be the lowest since June 2010. Prices slumped 8 percent since the end of April to C$439.30 yesterday on ICE Futures Canada in Winnipeg. About 84.8 million soybean acres will be sown in the U.S. this year, the most ever, according to government data. Some consumers that crush oilseed can substitute soybeans for canola. Canola-yield potential is estimated at 34.3 bushels per acre, lower than the 40 bushels collected in 2013 and above the five-year average of 34.2 bushels, according to data collected by CWB during a four-day tour of the region that ended last week. Bloomberg

Canola’s tough grind

A bumper canola crop in Europe and excess stocks from last year’s harvest in Canada are likely to push prices even lower in Australia. Canola prices are sitting at $480 (Australian Dollar)

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a tonne at Australian ports, grinding down $40/t since April and May. Despite some flooding of Canadian crops, AWB central New South Wales representative Sam Reichstein, Orange, said he didn’t think it was likely to drive demand. “Some paddocks were flooded but the yield increase in other crops that received the rain, but weren’t flooded, will make up for that loss,” he said. “Canada is still sitting on plenty of stock from last year’s crop – they have a lot of stock left to export.” European growers are currently harvesting a record crop, meaning there will be lower import demand. With Asia, Europe and Middle Eastern markets, typically the largest importers of Australian canola, Mr Reichstein said the market would come down to domestic support. “There wasn’t much canola planted in northern NSW but Central West NSW and southern NSW have fared pretty well, which should more than make up for it.” Unless there was significant frost damage or other pest or disease issues, Mr Reichstein said canola prices would suffer. However, he said it was hard to forecast how low prices could fall. “Growers may hold on until it hits a price spike but we expect the price to grind lower over the course of harvest as growers try to get some cash flow going.” Australian Oilseeds Federation executive director Nick Goddard said canola prices had followed the downward trend of soybeans. “There is a very large soybean crop in North and South America so canola is caught up in that,” Mr Goddard said. The reality, he said, was that canola prices had returned to the long-term average price. “It’s brought it back to about $430/t to $450/t for old crop.” Canola prices haven’t fallen as low as soybeans, however. “With the Canadian canola crop there is a bit of uncertainty on the volume of it since it got some heavy rain on it, which is why (canola) hasn’t fallen as much as soybeans.” The Land (Australia)