Bird flu could reduce domestic demand for feed

David Sheppard, Gleadell’s Managing Director, comments on the wheat market.

Wheat

- Chinese import demand has been hit by a new bird flu outbreak with corn 50%, wheat 46% and soybean 20% lower than last year.

- Ukraine lifts cap on wheat export but volumes are not expected to exceed 200k-300k tonnes.

- Russian Amin raised 2013 grain crop forecast to 95mln tonnes up from last season’s 71mln t.


- Canadian farmers intend planting 12% more wheat in 2013 with all wheat areas, including spring and durum estimated at 26.62mln acres.

- Rain has relieved the US drought brightening the outlook for new crop prospects.

- USDA report just 35% of the US winter wheat crop is in good/excellent condition with continued deterioration in the hard red winter wheat crop.

- USDA report stated that this year’s corn crop was 4% planted against 26% last year and 16% compared to the five-year average.

Markets this week have been pressured by reports of an improving global weather outlook and a slowing Chinese economy.

Commodity exports to the world’s second biggest consumer are under threat as a bird flu outbreak could reduce domestic demand for pig and poultry feed.

Wet weather in the US mid-west, while stalling corn plantings, is easing drought stress and boosting moisture levels, while continued cold weather systems are increasing potential crop damage to the US HRW crop


European prospects have also improved as spring conditions spread across much of northern Europe. However, with crops reported being 3-4 weeks behind their normal growth pattern, it remains to be seen how much yield damage has occurred during the extended winter period.

EU exports continue their strong pace. However, better-than-expected North African harvests are a matter of weeks away and there are increasing reports that both Russia and the Ukraine could re-emerge onto the export markets. These two factors may dampen prospects later in the season.

In the UK, farmers are making the most of the improved weather and are busy sowing spring crops. Like others parts of the EU, UK crops are looking a few weeks little export interest.

In summary, apart from the HRW wheat areas of the US and heavy snow cover across Canada, the weather outlook has turned more positive for new crop prospects, leading to the recent sharp drop in market levels.

On paper, there remains the potential for a massive 2013 global corn crop, and a 30-35mln t rebound in wheat production, which if achieved would keep further rallies in check.

Weather remains the key, and the markets will react to any scenario, especially remembering that crops are not yet made, and in the case of US corn, not even planted.

Jonathan Lane, Gleadell’s Trading Manager, comments on OSR market:

- The Paris-based May MATIF rapeseed futures market has rallied throughout the week, primarily for technical reasons as traders buy back their positions to avoid physical delivery. The contract expires on Tuesday, and while domestic prices have ticked slightly higher they have not moved up in line with MATIF. Ex-farm prices remain in the low £390s.

- Crush margins are currently around breakeven within both the food oil and biodiesel sector, and demand from the crusher is pretty limited.

- New crop business remains limited in both the UK and Europe with little coming forward from farm.

- The soybean harvest continues in South America and although we have no major weather problems, logistical issues and a lack of farmer selling in Argentina remain.