Jonathan Lane, Trading Manager at Gleadell’s explains the effect that the South American drought is having on the global grain markets.

The balanced market of last week has been firmly tipped in favor of the ‘bulls’, with a combination of South American crop concerns, potential export restrictions in Russia/Argentina and fund buying interest supporting the sharp spike in price values. The likelihood of further cuts in the next USDA report, in relation to Argentine cornand soybean production, seems to be getting priced into the market and if not realised in the USDA could produce another ‘buy the rumor, sell the fact’.

At present, fundamentals that still remain bearish are off the radar of most traders with more than adequate stocks of wheat and feed grains, and a workable corn stock, albeit even with a 3-5mln/t reduction in production. A weaker US$ has also supported the rise in Chicago and, with the US traders believing that the world will have to come to them for wheat, corn and soybeans, the rally may continue in the short-term – longer term market prospects remain more uncertain.  

Summary

• IGC raises forecast for global 2011 wheat and corn harvest by 7mln/t and 8mln/t respectively.
• IGC projects world wheat area for 2012 harvest will expand by 1.7% to 225mln/ha, the largest area since 1998.
• Informa raises US 2012 corn acreage forecast to 94.75mln acres, all-wheat plantings are also raised to 57.9mln acres.
• Ukrainian farmers look likely to increase area under corn to compensate for loss of winter grains – snow cover seen protecting crops.
• Indian Farm Minister reports this years' wheat crop will likely cross the record 85.9mln/t set this year – higher plantings/weather.
• Russian wheat prices firm – exports (20mln/t by end-January), fast enough to refresh talk of export curbs – level of 23-25mln/t.
• Ukrainian grain exports fell in December to 2.18mln/t, mostly corn which were reported at 1.78mln/t.
• EU wheat prices transformed by Black Sea logistical issues – rail bottleneck/lack of rail cars.
• The Argentine drought crisis raises rumors of a government cut-off of grain shipments.
• Russian grain stocks in southern exporting region as of December 1st were below levels of a year ago due to strong export pace.