Gleadell Market Report - 4th July 2011
WHEAT
The USDA shocked grain markets on Thursday by announcing a much larger than expected area planted to Corn of 92.28 million acres; also Corn stocks came in above expectations at 3.67 billion bushels.
This figure was well above their June estimate of 90.7 million acres and resulted in Corn prices being locked limit down in Thursday’s day trade, with the July 11 contract seeing the biggest one day fall for a Corn contract in over ten years.
In recent weeks, US farmers have been reported as struggling against wet weather to get the crop planted. However, if the USDA’s numbers are correct, they appear to have done the job.
Whilst soybean plantings didn’t quite meet analyst’s predictions, US farmers also planted more spring wheat than expected.
The world wheat market has been a follower of Corn over recent months and the USDA numbers caused a major sell off in Chicago and other wheat markets with LIFFE closing down by £11+ and Matif by €12–15.
Does this mean that prices must now head inexorably lower? We would say perhaps ’yes’ in the short term but maybe ’no’ thereafter.
Whilst yesterday, and probably for a while, we may see markets under pressure – it is also true to say that world Corn stocks remain tight and that the world will again draw down on wheat stocks in 2011/12.
In the UK and EU we have a tight wheat market with a limited exportable surplus. Whilst in Russia, where the drought and subsequent export ban started a year ago, heat is again building.
On the other side of the coin, things look good in Australia - and India and Iran have signalled that they may have wheat to export.
Prices remain good for farmers on any historical basis and, whilst prices have fundamental support, it is true to say that the funds - some of whom never look outside the USA - may well see yesterday’s numbers as a further reason to sell agricultural commodities in the short term.
OILSEED MARKETS - Jonathan Lane, trading manager
US soybean futures dived lower this week with the biggest move coming yesterday following the bearish USDA report.
Soybean prices have now fallen to 3½ month lows, with the USDA increasing ending stocks despite the strong demand. But it was really the spill-over pressure from the huge sell off in the corn and wheat markets that drove prices down as both complexes fell by their daily limit.
In Europe the market has also fallen sharply. The sentiment stemming from the weaker soy market, added to better than expected yields from the crops that are now being cut in South and South Eastern Europe, have undermined prices.
The combines will be moving into the Paris basin over the next week and the production we see from this region should give us a strong indication of what we can expect to see in terms of European production this campaign. The market had been expecting a disaster and it’s looking increasingly likely that things might not be as bad as previously thought. That is why we have seen the sharp retrenchment in prices.
In the UK, farm gate prices have been cushioned from the full value of the declines by the sharp fall in sterling, and current prices still represent good returns for farmers.
Crops in the South East of the UK have been sprayed off in the last week so, weather permitting, we are expecting to see the first new crop rapeseed in about a fortnight.
