Jonathan Lane, Gleadell’s trading manager, comments on grain markets:
WHEAT
- USDA reports US wheat harvest 80% complete, 75% last week – SRW harvest complete with HRW harvest 91% complete.
- AAFC reduces Canadian all-wheat production to 26.3mln t, from 26.7mln t previously – still above last year’s 25.3mln t.
- Russian deputy PM forecasts no need for grain export limits in 2012/13.
- German farm co-op association raises its forecast for 2012 wheat harvest to 21.9mln t, from 21.3mln t – 22.7mln t last year.
- Britain’s 2012 wheat area reported at just over 2mln hectares – highest since 2008.
- USDA reports corn crop in good/excellent condition at 31%, down 9% points on the week – further declines expected.
- Russian Ag Ministry revises 2012 grain crop forecast down to 80-85mln t – could reduce export forecast if poor weather continues.?
- SovEcon reports 2012 grain crop at 78.5-81.5mln t – exports could decline by half to 13-14mln t from 28.1mln t in 2011/12.
- Kazakhstan drought signals alarm bells for grain crop – expected to fall to 10mln t from 12mln t this season.
- Ukrainian and Serbian maize yields hit by bad weather – crops estimated to fall 2mln t and 3mln t respectively.
- Argentinian wheat sowings slowed by cold, dry weather – sowings reported down 22% at 3.59mln hectares by Rosario Grain exchange.
- Indian farm minister reports that weak monsoon presents challenge to grain output growth.
SUMMARY
The rise in global grain markets has continued this week as concerns over the US corn crop intensifies. The drop in ratings to 31% in good/excellent condition is the lowest since 1988, the last time the crop was decimated when good/excellent ratings fell to only 14%. Reports of potential rain in the stricken areas, along with talk of the US government easing ethanol targets to reduce the pressure on corn supplies, led to some profit-taking.
This was, however, short-lived as the US Agriculture Secretary, Tom Vilsack, said that the crop situation isn’t bad enough to warrant a reduction in government mandates for corn-based ethanol production, prompting a fresh surge in buying activity. Mr Vilsack surely endeared himself to Midwest farmers when he said he was saying a ‘daily prayer‘ for rain to fall, and would do a ‘rain dance‘ if he could! Politicians – don’t you just love them?
Wheat markets continue to be influenced by declining crop prospects in the Black Sea region, with analysts reporting lower crop/export forecasts for Russia, the Ukraine and Kazakhstan. In Europe, despite recent upgrades in French/German crop estimates, markets are dominated by quality concerns across much of the north due to the continued wet, damp weather conditions.
In the UK, reports of fusarium, various rusts and septoria – amongst others – are worrying many in the trade and in the human consumption sector. Milling premiums have rocketed to levels where German imports are now being bought at lower levels than UK Group 1’s quoted, and the crop size has been dropped by most pundits to closer to 15 mln t than 16 mln t. If the change to better weather, predicted to start at the weekend, is correct – the whole grain chain will breathe a sigh of relief.
In summary, although it is too early to write-off wheat crops, the likelihood of a quality issue gathers pace by the day, and the tightness in old crop UK supplies has resulted in imports of Polish and French wheat – to name two. Black Sea supplies are seen lower for this season, lower wheat crop areas are forecast for the southern hemisphere and the US story is well documented. Global demand remains slow, and it may need international tenders by key importing regions to determine the real value of wheat in the market.
OILSEED MARKETS - Willie Wright, Oilseed Trader
Hot and dry weather in the US continues to provide direction for the global oilseeds markets. Soybeans have made new contract highs this week with the CBOT front month trading at $17.02 and Nov at $16.38. Short term weather forecasts in the US show no sign of significant rain, increasing the chances of further yield reductions prompting longs to sit tight. This, along with the poor South American soybean crop and very small end stocks, will support soybeans in the medium term.
Crude oil futures posted their sixth straight gain with a lift from US gasoline futures, which notched the biggest percentage gain in the oil futures complex. Gasoline has now moved above its 200 day moving average, boosted by the US government's inventory/stocks report showing gasoline stocks fell last week, against expectations for a rise.
Rapeseed prices have rallied to new highs in matif rapeseed futures this week, with August touching €526.50 and November €524.50 – ex farm prices are trading at £380 for August and £390 for November, depending on location. Many rapeseed crops in the UK have now been sprayed off. Unfortunately, the weather has not been favourable and there is some pre-harvest anticipation regarding quality and yield. Reports from the continent are suggesting reasonable quality and yield, although most would acknowledge harvest is running 7-10 days behind last year. Rapeseed prices are being driven by soybeans - soybeans historically post cycle price highs in the last 2 weeks of July, so it may be timely to take advantage of these excellent prices.
Macro-economic factors have dulled down, although Italy and Spain are still paying unsustainable levels to roll their respective government debt. Economists have been happy that inflation is falling, supporting calls for the US Fed to start a further round of quantitative easing. This view may change quickly with the sharp rises in agricultural commodities due to the worst US drought in decades; corn, wheat, sugar and soybean prices are all up by around 44%, 48%, 22% and 26% respectively from early June!
