GRAIN MARKETS - David Sheppard, managing director
WHEAT
Rarely, if ever, have grain markets been so buffeted by macro economic factors as over the past week. Turmoil in stock markets has spread to bonds and to all commodity exchanges with alarming rapidity, and just to add to the confusion, foreign exchange markets have been driven sharply up and down by the latest data or by rumours and gossip.
Indeed, the level of the Swiss franc (traditionally seen as a safe haven) has appreciated to such an extent that the volume of their traditional exports of expensive watches, chocolate and cuckoo clocks is set to slump dramatically as an unlikely and unfortunate consequence of global financial carnage. Whilst grain markets have been relatively stable in amongst the turmoil, it is a strange world where the trading level of the Dow Jones is a guide to the next move in the wheat price.
In the UK, harvest has been a stop-start affair with the emphasis on stop the further north you go. Maybe 20% of the crop has been cut with quality issues, mainly confined to lower Hagberg falling numbers in Oakley, Viscount and some other feed type wheats. Group 1 and 2 wheats have mainly been of good quality but, other than in the spot position, millers have stepped out of the market till they see more of the crop. Premiums for both spot available feed and milling wheats are still worthwhile.
The Defra June census was released this week. The census came in at around the expected numbers with the wheat area in the UK rising to 1.821 mln ha – a rise of 1.6% versus 2010. Yield information to date is patchy but generally slightly better than expectations.
Yesterday saw the release of some fundamental information that is very much related to grain, in the form of the USDA production and supply/demand report. This keenly awaited report was expected to downgrade yield estimates for the US Corn crop following the heatwave seen in the Midwest in July. It is on this number that much of the structure of world grain prices is stacked. The key question was - by how much would they drop their yield guesstimate?
The answer to that question is that the USDA Corn yield figure came in at 153 bushels per acre. This was at the lowest end of analyst expectations. Alongside this bullish news, which indicates a tight US Corn S and D, the USDA also increased the 2011/12 world wheat crop to 672.09mln/t – up around 10mln/t on their July figure with increases in Russia, Ukraine, India, China and the EU. They also raised their estimate of world wheat stocks by 6.7mln/t to 188.9mln/t. Whilst the news re wheat is not at all bullish, early market reaction indicated that the corn story is the focus and Chicago did indeed open firmer although overnight markets fell back from the highs. The world has plenty of wheat available but the US needs to ration corn usage. Volatility is absolutely assured.
OILSEED MARKETS - Jonathan Lane, trading manager
This has been a crazy week in the rapeseed market with the prices on the Matif rapeseed futures trading from €430 last Thursday down to a low of €392.5 on Tuesday and, at the time of writing, all the way back to €417.50!
The market has been caught up in the general bearish economic environment with the spark for the latest price move coming from Standard and Poor’s decision to downgrade US debt last Saturday. Since Monday, the World’s stock markets have had billions slashed off their value as investors have fled for the perceived security of gold and the Swiss Franc. Crude oil fell sharply in both New York and London and this was largely behind the drop in the global oilseeds complex as the bio-fuel margins became increasingly less attractive.
As if the turmoil in the outside market weren’t enough to contend with, we also had a USDA report that turned out to be supportive for soybeans and corn. The USDA slashed their estimated corn yield to 153bu/ac from 158.7 and also cut their prediction for US soybean production. This has allowed prices to re-gain some of its earlier losses, but the market is very nervous and is technically still in a bearish trend despite the underlying bullish fundamentals.
In summary, this market should ultimately find buyers as European rapeseed looks comparatively cheap versus Canadian canola and soy oil. But, for the time being, the fundamentals count for nothing. Until the world starts to feel like it has got some sort of a handle on how it’s going to deal with the debt crisis, the market is going to remain very nervous and very volatile.
