Black Monday, Egyptian Demand & IGC Expectations --- This Week in the Grain Markets

Grains were recently taken for a ride along with the rest of the world markets, mainly thanks to tanking equity markets in Asia. They’re calling August 24, 2015 Black Monday as markets in China crashed, and when North American markets opened up, they quickly followed. The main argument for the flash decline is lack of confidence in the Chinese economy, which is why panic spread and equity and commodity markets all fell significantly.

As the Chinese economy is trying to get propped up (government bailouts of the stock market, interest rate drops, etc.), world governments elsewhere are looking for better ways to deal with economic contagion spreading.

Unfortunately, the market demands that this risk be priced in accordingly, which is exactly why global markets all headed sharply lower.

It’s not all for naught though! Most North American markets bounced back, though many gains in the grains and oilseed markets were erased on the futures board. Simply put, there were some questions about Chinese demand for soybeans and more expectations for a bigger U.S. crop. Although the Chinese demand concerns were eventually silenced with some good U.S. export sales announcements to the People’s Republic, the supply factor continues to shadow the markets.

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Brennan Turner joins Shaun Haney for a special audio wrap-up of the week in grain markets.

On that note, demand is definitely lacking. The world’s biggest buyer, Egypt, only bought one cargo shipment recently, and it was at a delivered price of $190/MT USD from Russia. This brings to light a second bearish fundamental: European exports have slowed considerably as Russia & Ukraine are taking advantage of their weaker currencies.

The other major bearish component is that the International Grains Council (IGC) just came out with their updated expectations for this year’s crop, and things are bigger. The IGC lifted global grain ending stocks by two million tonnes to 447 million tonnes, a level not seen in almost 30 years.

World grain production was increased by 18 million tonnes to almost two billion tonnes, mostly thanks to bigger-than-expected cereal crops, especially in Europe & the Black Sea.

Wheat production was increased by 10 million tonnes to 720 million tonnes (just shy of last year’s record crop but still below the USDA’s August WASDE estimate of 726.55 million tonnes).

Global corn output was raised by two million tonnes, coming in at 968 million tonnes,  just 35 million tonnes below last year’s record production and again, still below the USDA’s estimate of 985.6M tonnes.

While the bearish fundamentals remain, bulls continue to look for new catalysts to position themselves for. The likeliest of scenarios is an El Nino event coming to fruition. While the models suggest that this year’s event could be as strong as that in 1997/1998, looking at various charts major grain and oilseed prices weren’t significantly changed.

What could make things interesting could be currency moves, as any countries experiencing stronger depreciation against the U.S. dollar will likely seek to maximize their advantage. This should include Canada, and in the short-term pulse crops seem to be enjoying the most success for now.

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