David Sheppard, Gleadell’s Managing Director, comments on the wheat market…

WHEAT

Old crop

It is becoming increasingly apparent that there is more than enough wheat left in UK stores. Imports have being running between 200-250k t per month and the supply and demand balance sheet for crop 2012/13 now reflects a carry out figure of 2.6mln t, up 1.4mln t year on year.

New crop

The global picture continues to have a bearish undertone. The US has mostly planted its corn and the weather is moving from being wet to being warm, creating greenhouse conditions across large parts of the main US growing regions. Wheat harvest in the HRW area is underway and yields have generally been better than expected. Unless we see a return to severe heat and drought, the market should remain on the defensive. However the lesson of the last few years is that crops are not made till they are made!

In Europe the outlook continues to improve. Strategie Grains has increased its estimate on EU wheat crops due to higher acreage in Hungary, Spain, Germany and the Czech Republic. Yields are expected to be good and certainly the early barley yields from Hungary and Romania have been much better than expected.

News this week that China has bought 200,000mt of French wheat certainly improved market sentiment, at least in the short term.

Closer to home there is a general acceptance that UK crops have improved significantly – some trade bodies are putting their crop estimates as high as 12mln t. The big swing factors for the UK market will be the quality of the crop we eventually get and how much demand we see from the ethanol sector. Good quality and no ethanol demand could see the UK wheat prices undermined by maize imports, particularly into the north of the UK, but ultimately the farm-gate prices the UK farmer will receive will be set by the global market.

Closing comment

The market is still all about the weather and if the crop can deliver its potential. The next 5-6 weeks will be key to crop development but without a significant  production problem in one of the important growing regions the downtrend in prices looks set to continue.

The current market outlook would suggest that growers should seize upon any rally as an opportunity to sell a percentage of their crop.

Jonathan Lane, Gleadell’s Trading Manager, comments on the OSR market

The latest soybean planting figures were 85% complete, compared with the five-year average of 91% and latest forecasts point towards favourable weather conditions this week. Yesterday Informa released its latest acreage figures and although bean figures were above the last USDA report they were not as large as the market had been anticipating. The key report to watch now is next Friday’s USDA stocks and acreage report,which will give an indication of how much acreage was switched to beans.

In the Baltics and the Black Sea regions we believe the rapeseed crops are looking in good condition and the weather remains favourable. The new crop market remains fairly slow with a lack of farmer selling. With the MATIF Aug13 contract weakening (413 euros at the time of writing) margins for harvest are now beginning to interest the crush, but they remain poor for the latter contract months.

In the UK very small parcels of old crop continue to trade with prices weakening all the time. Our advice to farmers remains unchanged - old crop should be sold as soon as possible with new crop prices trading at a £50/t discount.

Closing comment

The market will continue to focus on weather in the short term, but global supply and demand currently has a more bearish tone than this time last year.