USDA DATA DIGESTED, BUT FOCUS TURNS TO SOWINGS REPORT: Issue 25 Mar 11, 2013

By Jack Scoville, The Price Futures Group

The U.S. Department of Agriculture (USDA) released its monthly supply and demand estimates on March 8th, and the reports were interesting for the changes that USDA made and for the changes they did not make.

These reports will stay in the back of the mind of the traders for the coming week, but attention will now turn to quarterly stocks report for grains that will be released at the end of the month and also the prospective plantings report to be released at the same time.

Soybeans domestic ending stocks data was left unchanged by USDA, and this was considered a negative surprise as traders had expected USDA to increase export demand and cut ending stocks.

USDA left Brazil soybeans production estimates unchanged against ideas that production would be lower, and cut production estimates for Argentina, although not as much as the trade had expected.

All in all the report was negative to prices, and the market reacted accordingly.

USDA seems in part to be waiting until it sees what the stocks report shows at the end of the month before making adjustments. USDA also seems to be taking a conservative approach when making these estimates as it monitors the demand in Brazil and the logistical problems in getting soybeans to port and exported.

It knows that any improvement in the situation could cause some big sales cancellations here and an increase in stocks. Conversely, demand could continue strong if the logistical problems in Brazil continue.

So leaving things alone was justified even if a little negative to prices. The reports at the end of the month should show tight supplies in any event so downside potential for futures should be limited and it still seems that the market will need to see exports flowing at a good pace from South America before it can move a lot lower. This will happen sooner or later, the only question is when and no one knows right now.

USDA also left its corn ending stocks estimates unchanged. Traders had expected USDA to show less export demand and unchanged domestic demand. But, domestic demand was increased and ending stocks were left unchanged.

The estimates created a strong rally in corn on Friday and kept wheat prices from dropping very far. USDA wants once again to wait until it sees the quarterly stocks reports before making any changes.

The cash market in the interior U.S. remains very tight and basis levels remain very strong to extremely strong. The cash market alone is telling USDA that stocks are tight, so USDA is justified in leaving its stocks estimates unchanged.

Futures reacted by climbing off the lows of the week and putting in a strong close. Futures should probably hold above 700 for now until more is known about the supply situation here.

The report for wheat was negative to prices, but futures did not work much lower due to the rally in corn. USDA showed increased ending stocks due to reduced export demand, especially for Hard Red Winter Wheat.

This is good news for Philippines importers and millers as prices for bread wheat can probably work lower as we look ahead. Soft Red Winter demand was increased as this class of wheat is being used primarily as feed grain these days. SRW wheat is replacing corn in some rations.

But HRW wheat demand has been disappointing, and this is what USDA showed on Friday. Cheaper prices and better days are coming for wheat importers as long as world wheat growing conditions continue to improve. Conditions keep getting better here in the U.S., and our talks in Eastern Europe indicate that they are better there as well.

Lower prices should eventually be seen if the conditions continue and if production ideas for the coming year remain strong.

Rice data was bullish for U.S. futures, but showed no real reason for world prices to move much.

USDA showed increased demand for long grain, which should have done a better job of supporting futures. Futures are now cheap to cash, with Arkansas cash markets and futures prices about the same.

The U.S. cash market has been very tight and the futures have not reflected this as speculators look at increasing world production and see no reason to buy. However, the U.S. is selling rice as the Brazil and Argentina competition is less into Latin American buyers. These trends will continue, and U.S. futures should finally move higher.

That does not need to spill into Asian prices. What happens to Asian prices will depend more on Chinese demand. Another year of big demand from them could mean a big increase in prices in all parts of the world. Less demand would mean that Asian prices could remain relatively weak, especially when compared to western prices.

PHILIPPINE MINE REOPENS, BUT ISSUES LINGER
By Rene Pastor

The biggest miner in the Philippines resumed operations at its premier mine after a spill seven months ago shut down operations, but the bigger issues on how mining will operate in the country at the hands of a confused government remain.

Philex Mining resumed operations at its Padcal mine on the northern island of Luzon after being given the go-ahead by two government bureaus.

The Mines and Geosciences Bureau (MGB) had earlier given permission to resume business, but Philex had to wait for the Pollution Adjudication Board (PAB) to also give its go-ahead before opening shop. That, in a nutshell, summarizes the excessive bureaucracy in the Philippines.

It should make all the sense in the world that there should only be one government body to make the decision on this. Having two is just plain inefficient.

Philex officials sounded all the right notes. “This is truly an indication of the government’s trust in us as a responsible mining company, to once again prove that we can continue working for economic progress while protecting the environment,” President and COO Eulalio Austin, Jr. said.

The government of President Benigno Aquino continues to treat the mining industry like a leper because it is politically radioactive. The PAB is now requiring Philex to submit a monthly report to monitor how it is doing.
Why? Isn’t that the job of the MGB to begin with?
Can’t they go back with the MGB in half a year and review what has been done? Or is this just to make the PAB look like they are pro-active on the case?

Oh, Philex will turn in that report. But government being government, as long as there are no more problems at Padcal, the authorities will just as soon forget it.

WEEKLY GRAINS MARKET NEWS FROM THE USDA PACIFIC NORTHWEST: MARCH 7

There were 12 grain vessels in Columbia River ports on Thursday, March 7, with five docked compared to 16 last Thursday with seven docked.

Confirmed new export sales were to Japan. Japan purchased the following wheat in metric tons: 26,888 of dark northern spring wheat for April 21 to May 20 shipment as well as 7,410 of western white wheat and 13,360 of HRW wheat for arrival by June 30.

Bids for US 1 Soft White Wheat delivered to Portland in unit trains or barges during March trended four to 10 cents per bushel lower than week ago bids for March delivery. Some exporters were not issuing bids for nearby delivery.

Bids for 11.5 percent protein US 1 Hard Red Winter wheat for March delivery declined by 3.25 to 8.25 cents per bushel compared to last Thursday’s noon bids for March delivery. Lower Kansas City May wheat futures pressured bids.

Bids for non-guaranteed 14.0 percent protein US 1 Dark Northern Spring Wheat for March Portland delivery trended 3.75 to 8.75 cents per bushel higher compared with last week’s noon bids for March delivery. A higher basis bid by most exporters supported cash bids. Some exporters were not issuing bids for nearby delivery.

Protein scales for non-guaranteed 14.0 percent protein were plus zero cents each 1/4 of a percent of protein up to 16 percent protein and minus four to five cents each 1/4 of a percent of protein down to 13 percent protein.

Outstanding U.S. white wheat export sales as of February 28, 2013 for the marketing year beginning June 1, 2012 and ending May 31, 2013, totaled 726.3 thousand MT compared to 803.9 thousand MT on February 21, 2012, and 1621.1 thousand MT one year ago.

Outstanding white wheat export sales for the 2012-2013 marketing year were to the following countries in 1000 MT:

Japan 149.5
South Korea 137.7
Philippines 120.0
Egypt 55.0
Thailand 50.0
Nigeria 19.2
Taiwan 13.8
Burma 3.0
Malaysia 1.5
Canada 1.3
Vietnam 0.5
Hong Kong 0.3
total unknown 174.5

Accumulated white wheat export shipments as of February 28, 2013, in 1000 MT for the 2012-2013 marketing year, totaled 3577.1 compared to 3914.5 one year ago.

PALM OIL OUTLOOK: MARKET QUIET AS INDUSTRY CONFERENCE KEEPS PLAYERS AWAY
By Jack Scoville, The Price Futures Group

Palm oil worked lower on ideas that demand was not as good as hoped and as many participated in the annual palm oil conference held in Kuala Lumpur last week. Overall volumes traded were not very high due to the conference.

The lack of export demand was enough to send prices a little lower, but many will want to wait and see the MPOB (Malaysia Palm Oil Board) data for the month before making any real big moves. That is because MPOB is expected to show a seasonal decline in production and also a decline in stocks levels.

The decline might be enough to keep prices from moving much lower, although no one right now seems too excited in upside potential.

But palm oil is out there and it could be that soybean oil gets a little harder to find. The shipping delays in Brazil are causing demand for soybeans to be shifted to the U.S., and prices in the U.S. are working higher.

Soybean oil has been lagging, but it is still trading on a firm note. There are no real ideas when Brazil will start exporting. Argentina farmers are getting ready to harvest, too, but are not willing sellers. They do not trust their government very much in almost any important matter, and so they will most likely hold soybeans instead of turning them into cash.

The way the government is going in Argentina, it could be a very slow marketing season for them and that means less soybean oil available to the world market as Argentina is the world’s largest exporter of the oil.

All in all, there are hopes for better prices down the road even if the hopes do not seem very strong at present. China is said to be full for now, and India might be pretty well bought too.

But other buyers will appear if South America keeps on its current path, and for now there is nothing going on there to suggest a change is coming soon.

INDONESIA SUGAR IMPORTS UP 17.7 PCT IN 2012/13: REPORT

Sugar imports by Indonesia in the 2012/13 marketing year (August/July) are seen rising 17.7 percent to 3.4 million metric tons, a report by the agriculture attaché at the U.S. embassy in Jakarta said.

“This increase is primarily driven by Indonesia’s food and beverage industry, as well as regional spikes in imports of plantation white sugar,” the report by the attaché said.

Attaché reports are compiled by U.S. agriculture experts at the embassy in the host country. They are not official data of the U.S. Agriculture Department but are considered as authoritative by the global commodity community.

But with elections in Indonesia coming up in 2014 and politicians normally campaigning against food imports, the attaché believes sugar imports by Indonesia will dip in the coming 2013/14 season.
“The GOI (Government of Indonesia) will likely insist that domestically produced plantation white sugar will be ‘sufficient’ to meet demand. Any refined sugar imports will only be imported by the food and beverage industry,” the report explained.

Indonesia’s sugar production in 2012/13 is expected to reach 1.97 million tons, up 7.7 percent from the level in 2011/12.

A total of 48 sugar mills are located on the main island of Java, and they account for nearly two-thirds, or 64 percent, of total Indonesian white sugar output.

Sugar consumption in 2013/14 is seen rising to 5.2 million tons, from 5.13 million tons in 2012/13 due to rising demand from the food and beverage sector and a population expanding by 1.4 percent annually.

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