Tuesday Morning Thoughts

The overnights are lower, giving up some of last night's gains, influenced by the USDA crop progress report which showed a 3 point improvement in good/excellent for beans, and a 2 point improvement for corn.

The soybean crop is now rated 69% good/excellent, it's best ratings of the season so far, with corn now rated even better at 70% in the top two categories.

Perhaps of even more interest is physical crop development. Soybeans appear to have largely caught up, if the USDA are to be believed, with 97% blooming, the same as last year and only 2 points behind the five year average. Pod setting is at 85%, just 1 point behind last year and 7 points behind the five year average.

Corn is still lagging at 57% at the dough stage, compared to 66% a year ago and 79% for the five year average. Corn denting is at 18%, compared to 25% dented a year ago, and 43% normally at this time of year.

The spring wheat harvest is also lagging. The six main spring wheat states are at 22% harvested compared to last year at 58% and the five year average of 66%.

Stocks in the Far East were lower overnight, which spilled over into European trade this morning. Crude oil is down around half a dollar. Crude stocks data are out later today from the American Petroleum Institute and tomorrow from the US Energy Dept. Last week both surprised with a heft drop in inventories.

The Indian government still haven't released any of their state-owned wheat stocks onto the domestic market, despite spiralling food prices, a situation that poses more questions than answers.

Let's have a quick shuftie at the figures being bandied about:

The 2009 harvest (brought in Mar/Apr) was around 77-80 MMT depending on whose figures we run with, of that the government bought around 25-26 MMT, leaving 52-55 MMT in private hands. The government's purchases added to existing old crop reserves of around 7 MMT, giving them total buffer stocks of 32-33 MMT.

"There is hardly any wheat stock left with the private trade in the open market," said the president of an Indian Flour Millers Association last week, as he urged the government to release some of their stocks.

First question: where's the 52-55 MMT all gone, given that India 'only' consumes around 6.5 MMT/month? Crossed the border in unlicensed exports?

Second question: is the 32-33 MMT really there, what condition is it in, given that much of it was stored in the open due to lack of space in government licenced silos at harvest time?

Third question: if private stocks have 'disappeared' how long will the government stocks last, especially with a rice acreage 20% down due to lack of monsoon rains?

China is in the middle of a drought of it's own, and may well continue to import US soybeans at a faster rate than the trade is currently anticipating. There is also talk of beans becoming so uncompetitively priced in Brazil that they may import US material themselves. Certainly the Chinese will be putting all their business the way of the US if that's the case.

China sold just under 200,000 MT of corn in it's weekly auction. The soybean auction is tomorrow. They don't seem to be looking to sell-off any wheat despite miraculously bringing in a bumper 2009 crop of supposedly 115 MMT, after the worst drought in 50 years. Funny that.

The pound is down to $1.6350 against the dollar and around 1.1450 against the euro, it's lowest in 2 1/2 months. At least it had the decency to wait for me to get back from the Costa! The surprise raising of QE at the beginning of the month, and last week's BoE's minutes revealing that three members of the MPC wanted an even bigger increase is proving difficult to shake off.