Outlook for UK crop production 'continues to worsen'

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

Wheat

The USDA produces bearish for corn and mildly bearish for wheat reports, corn stocks raised/wheat stocks unchanged.

The USDA projects a record 2013 US corn crop, second largest US soybean crop but a 3% drop in US wheat production.

Indian 2013 wheat production, although seen 3% lower at 92mln t, still would allow increased exports.

French July-December wheat exports down 12% year on year at 7.73mln t.

Kazakhstan sees ‘step-up’ in grain exports to Russia which could total 1mln t in the season.

Strategie Grains revises EU exports higher to 18.1mln t, mainly due to higher projections from the Baltic states.

Rain/snow brings relief to the US Plains, but no ‘drought buster’.

Russia to lift grain import duty by end of March however, must comply with terms of the custom union with Kazakhstan.

Lower Black sea grain stocks limit scope for grain export rebound in 2013/14.

Wheat prices have continued to drift lower, pressured by bearish USDA reports and better weather prospects in South America. The projections of larger soy and corn crops from South America will take the pressure off tight US supplies, was enough to spark fund selling from long-holders, dragging wheat lower.

Markets also seem to have written off the likelihood of exports to Russia boosting EU markets as many believe this will be from its neighbours, mainly Kazakhstan. Nearly 500,000mt of French wheat was sold aggressively to Algeria for May delivery, highlighting the heaviness in the French market at present.

Strategie Grains have lowered their EU-27 2013 soft wheat forecast by 1.1mln t to 131.2mln t, but also lifted its estimates for Maize production by almost 1mln t and also increased their barley estimate too. Their crop figure for the UK in 2013 is put at 12.4mln t, which could probably still be too high an estimate given the state of the crop and the feelings that plantings may only reach circa 1.5mln ha.

Oilseed Rape

European rapeseed futures have been caught up in the sharp downward move in the CBOT soy complex following last Fridays USDA report.

The market was expecting a further downward revision in US ending stocks on the back of the brisk pace of exports particularly to China, but the USDA appeared to ignore this and indicated that the US exports would all but cease once South American harvest gets underway. In addition the weather conditions in both Argentina and Brazil improved over the week and this added to the bearish sentiment and whilst there is no doubt that US ending are the tightest in fifty years, the news is all in the market and we need some fresh bullish news to turn the market around.

In the UK the wild swings in sterling have had a significant effect on our prices. It is worth noting that each 1 cent move reflects around £3 in UK farm gate prices. However the medium term outlook would point towards a recovery in Sterling, with key European economies continuing to flounder – even German output is starting to come under pressure.

The outlook for new crop production in the UK continues to worsen – we are estimating the UK planted area to be down around 20pct, but given persistent rain and pest damage we are now beginning to wonder if things could be much worse! Unfortunately for the UK farmer continental Europe is in good order and we are expecting to see a year on year increase in production.

With forecasts of big soy plantings, rain in Australia helping to replenish soil moistures ahead of drillings and the outlook for big crops in Europe it might be sensible for UK farmers to sell into what are traditionally good new crop values. However, we do appreciate this is difficult to do when the developing domestic crops all look so poor.