Jonathan Lane, Trading Manager at Gleadell, gives the latest insight into the global grain market; weather concerns persist in Europe as a drought looks ever more likely, though concern over the weather situation in the Americas has eased.

It used to be ‘for all the tea in China’ - but this year it could expand to soybeans, corn and wheat. The recent ‘step-up’ in purchases of soybean, corn and now wheat, either shows the true state of China’s import needs, or logistical problems keeping current supplies from the domestic market.

The answer could well make or break this and next year’s prices, as potential rising import needs are currently being matched by falling South American supplies and potential record new crop US production. The Chinese ‘import story’ could be as in previous years, a damp squib, and China tends to break better than its makes!

Within Europe, the concerns over the winter freeze are now turning to the spring drought with parts of Western Europe still in need of increased moisture. With the optimism of European exporters trimmed due to Russia declaring no need for export restrictions and South American wheat competitive into North Africa, EU old crop supplies may also rise later in the season.

In addition, with the US weather showing a marked improvement ahead of corn planting, and winter wheat emerging from dormancy, prices remain under profit-taking pressure from fund liquidation based on current US weather and not European weather concerns.

Summary:

• US corn and wheat values fall on favourable weather prospects as record corn plantings commence and rain alleviates drought concerns.
• North African countries (Algeria/Morocco) purchase South American wheat as region faces drought-hit domestic crop.
• Russian Government predicts no need for grain export restrictions during the current crop year – grain exports can reach 27mln t.
• German Farm Co-op Association projects that the 2012 wheat crop will rise 6.3% to 24.2mln t, up from 22.7mln t this year.
• Ukrainian Ag Ministry reports that nearly 30% of sprouted winter grain crops were in poor condition at 1 March – re-sown with spring crops.
• Droughts and frosts are likely to reduce Ukraine’s area under wheat to 4.0-4.3mln ht in 2012, down from 6.6mln ht a year earlier.
• Morocco halts barley import duties until end 2012 to ensure adequate supplies to its domestic market in the face of a growing drought.
• SovEcon reports that poor autumn/winter crop conditions in the south are threatening yields and could reduce Russian export potential.