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

Wheat

• USDA reports US wheat harvest 85% complete – spring wheat harvest 28% planted with 63% of crop in good/excellent condition. 
• CWB reports Western Canadian wheat and barley crops are developing well, and appear likely to produce a bigger harvest than last year.  
• Russian Grain Union sees no need for export restrictions – projects grain crop at 80-85mln t, with exports at 15-20mln t, depending on weather.    However, any report out of Russia currently comes with a large health warning.    
• China’s corn production may rise by 6-10mln t this year due to favourable weather – it may reduce the need for increased imports.   
• French farm ministry raises its estimate of the 2012/13 soft wheat crop to 36.7mln t, up 8% on last year’s drought affected crop.
• USDA reports US corn crop in good/excellent condition at 24%, down 2% points on the week.    
• US corn yield expected to be cut in next week’s USDA report – latest estimate puts yield at 124.3bushels/acre (USDA currently at 146 bushels/acre).    
• CHB Group reports wheat production in Western Australia is likely to fall to 9.5-10.5mln t in 2012/13, down from the record 15mln t last year.  
• BAGE reports dry weather affecting Argentina’s wheat crop – area forecast to be 22% down at 3.6mln hectares – 88% planted to date.  
• IGC sharply cuts 2012/13 Global corn output by 53mln t to 864mln t, wheat forecast left unchanged at 665mln t.   

Summary

Markets gained support late last week on continued concerns over US corn and soybean production, due to the ongoing drought conditions. However, as this week has progressed, the forecast of more rain in the US Midwest, an apparent ‘play-down’ of export restrictions from within Russia, and an increased French crop estimate has been enough to push market levels lower.   

US corn ratings decline again this week, albeit only falling 2%, as rains in the mid-west seem to have partially stabilised the crop. 

The USDA is due to release their supply & demand numbers next Friday and, with trade views of the corn yield considerably lower than the USDA, another severe cut on the demand side may be needed to address the balance sheet. 

Wheat markets are a mixed affair, with US wheat trying to price itself out of the feed chain (replacing corn), Black Sea crop and export numbers, providing much confusion and potential quality issues across the northern part of mainland Europe. Russia, while reducing their total crop forecast, increased their wheat outlook, whilst the Ukraine have pledged a two month notice of grain export curbs, and the French ministry raised their wheat outlook, stating wet weather had raised some doubts over grain quality. 

In summary, the trend going forward remains bullish. The Russian numbers were met with scepticism, the US corn scenario is tight and, unless we see some government intervention (ethanol mandate), will get tighter. The USDA report is out next Friday and may provide a few answers but, at present, the markets are all about if, what and maybe! In the UK, concerns over the crop continue. We have seen a few samples with wildly varying reported yields and quality, but too few to have any clear guide. We hope the current weather forecasts are wrong. 

Willie Wright, Gleadell's Oilseed Trader, comments on the markets

Oilseeds

Soybeans rallied in line with the soya complex at the start of the week in response to the poor crop condition ratings, although the rally was short lived as profit takers came back to the market. The US forecast is for some much needed light rain, which will help soybeans, but is more damage limitation than normal growing conditions. 

The European rapeseed harvest is well under way with the best reports coming from France. The French have raised their rapeseed crop estimates to 5.4 million tonnes. There are also good reports coming from Germany but, unfortunately, not the UK. The foul summer weather has taken its toll on UK rapeseed, with lower yields and quality being reported. Rapeseed prices appear to have decoupled from Soybeans and Canola in recent weeks whilst we digest harvest pressure. Rapeseed is competitively priced compared to other oilseeds, and will benefit from renewed demand at these levels. 

Macro-economic problems continue to erode general confidence in the wider market, with many people talking about the importance of retaining the Euro, but few commenting on how to retain the Euro without the Germans underwriting every other country’s finances. Confidence has been knocked once more by the Libor scandal and how this will impact on the banking sector.