Jonathan Lane, Gleadell’s trading manager, comments on grain markets which have seen prices ease this year as weather concerns have mostly abated.

The arrival of timely rains in the Black Sea region and a swift start to the US wheat harvest was enough to drag wheat values off the hefty highs witnessed last week. The funds covering their record short position over the past week generated little follow-through buying activity, and switched off any potential export buyers, leading to lower values as some profits were banked. Corn is trading at an increasing discount to wheat, leaving importers with a potential lower wheat demand.

Reports out of Russia and the Ukraine still promote good harvests for 2012 (but there is still time until harvest and these reports could be inflated for political reasons), and higher 2011/12 ending stocks would allow exports at least similar to this season. The EU still operates under a cloud of uncertainty over Greece, fresh Spanish bank worries, soaring Italian borrowing costs and what seems a greater rift between the IMF/CEB and the German chancellor, resulting in the Euro falling to a 2-year low at just under $1.24.

Markets at present seem to be influenced by improving weather prospects and the pace of the US wheat harvest, ignoring the more fundamental concerns of declining US crop ratings. Analysts believe that the recent rain in the US Midwest may improve crop ratings next week before drier weather is forecast to return.

Over the next 4-6 weeks the markets will remain weather driven, and until better assessments of US, EU and Black Sea crops can be determined, market direction remains difficult to predict.

Summary:

• USDA reports US wheat harvest 9% complete – ahead of normal pace.
• Russian Grain Union estimates 2012 grain crop at 94mln t, including 56mln t of wheat – exportable surplus at 30mln t.
• Ukrainian Agriculture Minister forecasts high 2012 grain harvest, up to 50mln t – increased stocks could help exports reach a record 22-27mln t - mainly maize.
• East Asian feed wheat demand seen falling by 3-4mln t, due to cheaper corn prices.
• Australian farmers hope rain will help wheat yields – rainfall in eastern region, but still dry conditions in west.
• USDA reports corn crop ratings at 72% good/excellent, down 5% from last week due to hot/dry weather.
• USDA reports winter wheat crop ratings down 4% on the week at 54% good/excellent – HRW down 4% and SRW down 2%.
• The European Commission’s crop-monitoring unit cuts its EU-27 soft wheat production estimate by 5mln t to 126.5mln t.
• IGC cuts global 2012/13 wheat production by 5mln t to 671mln t with end-season stocks revised sharply lower at 191mln t, down 15mln t.