17 June 2011

WHEAT

The Ukrainian President has signed a law adopting export duty tariffs for several varieties of grains.  The law comes into force on the 1st July 2011 and will be imposed until Jan 1st 2012.

Expectation is growing that Russia will follow the Ukraine and impose a levy on grain shipments to keep food prices in check.  The Russian Grain Union has already suggested the introduction of a level on fourth grade wheat, the type exported, once prices reach a certain level. But what level these may be at and when they may be imposed is far from clear.

Wet planting conditions will pare the recovery in Western Canada’s wheat area this year, tightening stocks.

CWB in its weekly report projected plantings of grains and oilseeds had advanced to 86% complete.

Austarlia record harvest predicted

Australia’s ABARE projected the country’s wheat area would reach a record 14.3mln hectares, with total wheat production forecast to be around 26.2mmt, slightly below the previous season’s record. Wheat exports could jump 9% to a record high of 20.1mmt, up from 18.47mmt in 2010/11.

USDA reported corn plantings 99% complete, based on their revised figure of 90.7mln acres. The crop was reported as being 69% good / excellent, up 2% on the week as favourable weather improves the outlook.

Winter wheat harvest was reported at 22% complete, above the five-year average of 13% However, spring wheat plantings continue to lag, with only 88% planted against normally being fully planted by this time of the year.

Egypt’s GASC purchased 120,000t (60tmt US SRW / 60tmt French) for July 11-20 shipment. GASC did not seek offers from Russia, stating it would exercise caution in its Russian wheat purchases after it was left to replace more than 500,000t last year when Russia imposed their grain export ban.

Strategie Grains sharply cut its forecast for this year’s grain crops due to dry conditions in the Western part of the EU. Wheat production is projected at 125.6mmt, down from 131.5mmt last month and below last season’s production of 126.6mmt.

UK April wheat exports fall to 93,056 tonnes bringing the year-to-date total to 2.44mmt, up 21% year-on-year.

Over the past week, markets have been under pressure as better crop prospects and lower US markets, combined with an apparent lack of demand, has encouraged long-holders to liquidate positions and bank profits. Harvest is now underway in the US where, despite poor yields of HRW, they are still being described as ‘better than expected’ in the soft wheat areas in particular.

Corn plantings, albeit on a smaller projected area, is complete removing another uncertainty from the market.

Bears or Bulls

In summary, the majority of the bullish factors that pushed the market higher over the past weeks have turned bearish.  The US corn crop has been planted, US winter wheat yields better than expected, rains across the EU, cooler weather in the FSU and the lifting of the Russian export ban has allowed a ‘feel-good’ factor to sweep the market and turn once hungry bulls into bears.

However, this short-term sentiment could be short-lived as the fundamentals still appear bullish for the medium / long-term, as crops in major producing countries are still in the ground, and in some cases, not even planted!

OILSEED MARKETS - Jonathan Lane, trading manager

The rapeseed crop in Britain could be in on track for a good harvest, but the EU will still have to import rapeseed, rapeseed oil and biodiesel in coming months.

Rapeseed in Europe continues to look very tight and this should limit any downside in the market.

Soybean futures in the US, however, continue to correct lower from their recent highs. They have held up well considering the steep sell-off in corn and wheat. There has been a slowing trend in export demand and crushing.

The commodity market in general maintains a negative tone, suffering heavy setbacks. Prices moved lower as traders reduced risk amid mounting concerns about Greece's debt, the health of the global economy and outlook for Chinese demand in the face of recent tightening moves to cool inflation in the growing economy.