A bearish theme pervaded the Ag markets for the past week on slow demand figures and an absence of any new bullish news. The US recorded a very lacklustre week of export demand, Russia upped its export outlook and forecast showers across Argentina has promised at least some respite.

The Chinese New Year was always going to provide a lull in the marketing year, especially one in which they have been such a dominant force.  Now that the celebrations are over, it would be reasonable to expect an uptick in buying activity.

We are coming into an interesting time for the new season crops.  The second tranche of the Russian export tax (doubling to US$60/t) will come into place mid March.  Theoretically, it should be good for Australian FOB values. We are also coming into the period when northern hemisphere crops start breaking dormancy.  A recent cold spell in Russia is not believed to have caused any damage (directly) but feet on the ground have noted ‘ice crusting’ – a physical layer of ice – which will need rapid warming to avoid problems.  Fortunately for them, temperatures are seen to be rising this week, which will help alleviate the above issue, and will also speed up the pace of fertiliser application in the warmer, southern regions.   Russian winter crop condition is seen to be improving, with recent guidance suggesting only 7-9% of the crop is in poor condition, compared with 22% seen as poor in December.

South America, while delayed, is making progress.  In Brazil in the key agricultural state of Matto Grosso, soybean harvest was at 54% completed versus 84% last year and a 5 year average of 70%.  Corn planting is at 55%, compared with 90% last year and the 5 year average of 80%.  Wet weather in the north of Brazil is causing all sorts of quality problems in beans.  Conversely, a dry February (40% of average) in Argentina with an outlook for a dry first half of March will keep questions buzzing around the state of the corn and bean crops there.  A relatively wet January had revived hopes of an average crop, however, with crops approaching key production stages, a return to wet weather is required.

We know that you have to keep feeding the bulls if you want the rally to continue.  China back from national holidays should help put demand back into the equation.  In the next few weeks we will have an idea of how the winter wheats are looking and will hope to get a sense of direction from there.

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The week ahead….

Snow and ice packs in the Northern Hemisphere will start to retreat giving us more of a glimpse of the condition of winter crops.  Expect plenty of commentary to start coming out, especially in the US where freeze damage to the wheat crops will be closely scrutinised.

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Data sources: USDA, Reuters, SovEcon, Mecardo

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