David Sheppard, Gleadell’s Managing Director, comments on the wheat market.
WHEAT
- Ukraine Ag Ministry sees 2013 grain harvest at an all-time high of 57.9mln t – higher corn production.
- SovEcon raises estimate of Russia’s 2013 wheat crop to 51.7mln t – government purchases to keep supplies tight.
- Kazakhstan grain harvest yields up – following the trend in Russia/Ukraine.
- Egypt (GASC) purchases 180,000t for October shipment – Russian/Romanian origin – French levels almost $15/t off the CIF price.
- IGC raises global wheat forecast to 691mln t, up 4mln t – global corn crop also raised higher, up 3mln t to 945mln t.
- UN’s FAO raises its estimates for world grains production by 14mln t to a record 2.492bln t – forecasts ‘greater stability’ in prices.
- Storms damage some Manitoba (Canada) crops as harvest continues. The winter wheat harvest is almost complete and has escaped the worst of the weather.
- Argentina wheat crop yields are expected to be lower without rains to support the recently planted wheat fields.
- EU commission cuts estimate of EU-28 corn crop to 65.8mln t, down from 70.9mln t previously – dry/hot weather in central Europe
As harvest progresses across the majority of the northern hemisphere, it appears that the earlier season concerns over weather damage have been lifted. Crop reports from most of the key producing regions are showing vastly increased yields, and crops appear to be getting larger rather than smaller. The only concern now appears to be over the US corn crop, with recent estimates from analysts trimming yield back to 152-153 bushel/acre (USDA currently at 154.4bushel/acre).
In Europe prices are down about €2/t on the week, although the strong pace of exports is keeping the market underpinned, at least in the short term. The granting of export licenses is running just over 2mln t above last season’s pace, although the recent tender by Egypt again saw Black Sea/eastern Europe secure the business, with corresponding French offers, on a CIF basis, about $15/t too expensive.
UK harvest pace continues to accelerate. However, buying activity remains lacklustre from domestic consumers. The apparent back-log of ‘as available’ harvest wheat has pressured spot values, as merchants try to accommodate farmers’ needs for movement against limited available space. This has not been helped by the lack of an export program, especially for feed wheat. UK prices are down about £4/t on the week, influenced by a firmer pound. In summary, wheat crops are increasing, and unless the wheat market gets support from the weather story (US corn/soybeans) the likelihood is for lower prices.
One note of interest from this week was the apparent lack of Ukrainian wheat offered to Egypt, either a confirmation of quality (unable to make the importing country’s General Authority for Supply Commodities spec) or, the likelihood of becoming a major corn exporter (at the expense of wheat) with their ‘barn-busting’ crop on the horizon! Another negative for wheat demand.
Jonathan Lane, Gleadell’s Trading Manager, comments on the OSR market
- The soybean market remains volatile with any changes in US weather moving the market. This week the Nov13 contract again tested recent highs but was unable to break through technical resistance levels and moved lower towards the end of the week. In the physical market we continue to see Chinese bean purchases from Argentina and Brazil.
- Sterling has continued to rally against the Euro and is having a negative effect on UK domestic prices. The pound’s strength is due to better-than-expected economic results, particularly in the UK service sector.
- In the UK the market remains focused on executing logistical plans. The delayed harvest and lack of export activity are creating problems for merchants and farmers. Crush margins remain profitable for pre-Christmas positions. We have seen some farmer selling into the rally but not in large volumes.
In summary the market remains focused on US weather and the next USDA report. Rapeseed supply and demand is unchanged, we have a large crop in Europe and we are expecting a large crop in Canada. Short-term direction will likely come from US weather reports and volatility should remain high with the uncertainty surrounding the bean crop.
