Question hangs over extent of UK plantings for 2013

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

Wheat

Market continues to firm as declining crop prospects in Australia and Argentina provide underlying fundamentals to support the market. Egypt re-entered the market yesterday for end December shipment and, surprisingly, enough Russian wheat was purchased along with French and Romanian. However, this may be just about the last we see of the Russians for a while.

The appearance of Russian wheat and news that the Ukraine may be ’softening’ its position on a wheat export ban may raise eyebrows and provide the bears (if any are left), with a ray of hope!

Little has changed regarding the UK situation, with the import pace set to increase as more UK Millers switch away from UK supplies due to quality issues. After harvest delays this season, and adverse weather conditions, growers are attempting to increase the pace of winter sowings which may extend the planting window into December and beyond. For the moment a big question mark hangs over the extent of UK wheat plantings for 2013.

Prices for the 2013 harvest have also risen, supported by the expectation of lower UK plantings, by the rise in old crop values and concerns over dry conditions in the US. Plantings are behind the pace in mainland Europe, although in Russia and the Ukraine the winter sowing campaign is almost complete, with higher expected acreage. Old crop fundamentals should support higher values, but at already high prices, any demand rationing may invoke profit-taking.

2013/2014 could provide the world with a crop back on the scale of a few seasons ago, something that the world is in need of, but a repeat of this year’s crop size would surely ignite the blue touch paper.

Oilseeds

The oilseed markets have been range bound this week, unable to break higher or lower on light volume trade. The week started with the news that hurricane Sandy was about to hit the US East Coast, closing US equity markets and some investment houses. This brought a negative tone to global markets, and MATIF rapeseed followed soybeans and financials lower in the early part of the week as investors adopted a risk-off approach. The soybean market rebounded towards the end of the week, trading up to the top of its recent range on reports of Chinese soybean purchases and improved Chinese economic data. The soybean supply and demand balance sheet remains extremely tight.

The domestic rapeseed market has mirrored the soybean market this week, trading within a range and unable to break higher or lower. We are still in a period of stagnation where there is little coming forward from farm, crushers are absent from the market and UK seed remains expensive internationally, meaning the UK export market is uncompetitive. November ex-farm values are around £370/tonne.

The macro environment has been fairly hectic, and hasn't been conducive to commodity investments with traders moving funds into bond and currency markets. A few issues are causing this approach including the imminent US elections, weak economic data from Europe, the continued Eurozone problems and hurricane Sandy.