Jonathan Lane, Gleadell’s trading manager, comments on grain markets …

WHEAT 

• USDA reports US wheat harvest 75% complete, 69% last week and 56% average
• Pakistan resumes wheat exports after almost 1 year.
• China’s winter wheat output seen 3% higher at a record 114.3mln t.
• French farm office AgriMer raises estimate of French 2012 soft wheat crop to 35.9mln t, up 5.7% from 2011.
• USDA report corn crop in good/excellent condition at 40%, down 8% on the week – 37% points below initial rating. 2012 corn yield cut by 20bpa to 146bpa – well below trade expectations. Crop reduced by 46mln t.
• Kazakhstan’s Ag Ministry lowers its 2012 grain crop forecast to a ‘below average’ 14mln t due to drought in southern areas.
• UkrAgroConsult reduced its forecast of Ukraine’s 2012 grain crop to 43.4mln t – wheat estimate unchanged at 14.18mln t. Ag Ministry lowers 2012/13 grain export forecast to 20mln t from earlier forecast of 23mln t – harvest at 45-47mln t.
• SovEcon revises lower its estimate for Russia’s 2012 grain crop to 80mln t – wheat estimate at 46mln t, down 10mln t on last year.
• Argentina Grain exchange cuts 2012/13 wheat area forecast to 3.7mln hectares – 65% of the area already planted.
• Strategie Grains cuts EU 2012 soft wheat production by 600,000t to 123.6mln t – downward revisions for Spain and the UK.

Summary

The USDA cuts its corn yield by an unprecedented 20bpa in yesterday’s report, adopting a more aggressive outlook than trade expectations. Many had expected a ‘conservative approach’ by the USDA, but this seems to be abandoned given the recent weather concerns and sharp decline in crop ratings. In August, the USDA will base its estimate on a farm survey, receiving actual feedback from farmers. Partially offsetting the 46mln t drop in production, the USDA lowered domestic demand by 27mln t, with lower feed, ethanol and export projections. This leaves the USDA with little scope to reduce demand further if supplies continue to decline, unless Washington changes the mandate regarding ethanol, lowering demand.

EU markets continued to be driven by a tight old crop wheat scenario, the prospects of delayed harvest and rising quality issues across much of Northern Europe. In addition, lower harvest/export projections from the Black Sea continue to support, although non-traditional exporters such as India and Pakistan are apparent in the market.

In summary, the trade will continue to trade weather and US crop ratings until the next USDA report, where many believe further yield cuts could be included. With the options becoming more limited to lower demand in the US, it could be that the EPA (ethanol demand), and not the USDA, that provides the next major price movement indicator

OILSEED MARKETS - Willie Wright, Gleadell's Oilseed Trader, comments on the markets ...

• Soybean prices have continued their strong performance with July old crop reaching the dizzy heights of $16.80 a new contract high. The sustained hot dry weather in the US Midwest has been the main driver for the recent move. This coincided with the latest USDA agricultural supply and demand report this week, which cut soybean yields to 40.5 bushels/acre, down from 43.9 bushels/acre. Soybean end stocks for the 2012/13 season were cut to 130mln bushels, down from 140mln bushels.
• Crude oil is back trading at $100 per barrel having touched $88 per barrel only 2 weeks ago. The price rise has been partly due to increased demand, but mostly the possibility of a further round of stimulus by the US Federal Reserve, which would draw investors to buy dollar-denominated commodities.
• Rapeseed prices have trended higher in line with the wider oilseeds sector and passed the previous highs made in April. Unfortunately for the UK farmer, Sterling has continued its rise against the Euro which has eroded UK ex farm prices slightly, with old crop levels trading around £390 ex farm and new crop levels at £380 ex farm, depending on locations. Weather in Europe and the UK hasn’t favoured crop production or ripening, the French estimate their rapeseed harvest to be around 10 days behind last year. UK harvest looks set to be 10 days/2 weeks behind last year which may help the few hardy souls achieve the magical £400 level ex farm for their old crop rapeseed.
• Macro-economic factors have slipped off the front pages once again, this does not mean the key issues have been resolved but, more likely, Eurozone fatigue has kicked in. Spain and Italy continue to raise money in the global bond markets, although most would agree they cannot continue to pay current rates of 7%. The market has a very cautious feel to it, with much concern about the depth of the Libor/Euribor scandal and the time it will take to restore confidence. If, however, we see another round of Fed stimulus this will favour dollar denominated commodities.