GRAIN MARKETS - Jonathan Lane, Trading Manager
WHEAT
- USDA trims US wheat stocks, corn left unchanged - above trade expectations - global stocks also lowered.
- Russian grain export from state reserves seen at 0.5-1.0mln t - quality may limit as from previous year’s crops.
- Russia sells 232,261t of grain from intervention during its first two intervention tenders - ministry aims to sell 2mln t.
- Ukraine will export 23.5mln t of grain in the current marketing season - 16mln t already exported.
- Egypt’s GASC purchases 115,000t of US SRW for May 21-31 shipment.
- About 4mln ha of crops are suffering from severe drought conditions in China.
- French farm ministry reports 350,000 hectares of winter soft wheat lost to cold-related damage - re-seeded with spring barley/corn.
- French farm office AgriMer cuts forecast of French 2011/12 soft wheat stocks to 2.1mln t - citing an increased export outlook (non EU).
- Strategie Grains cuts EU 2012/13 soft wheat output to 126.8mln t due to severe frost and drought - French and German crops revised lower
- Argentine 2012/13 wheat plantings to fall 15% on year as low global prices lead farmers to turn to alternative winter crops.
Summary
The USDA report released this week trimmed US wheat stocks, but left corn stocks unchanged which surprised most analysts.
The USDA reported that the potential of an early US corn harvest would increase stocks at the end of the season (end August) – is this fact or just creative accountancy? With US wheat stocks described as ’burdensome’ the higher than expected corn number was enough to trigger profit taking, especially with corn and spring wheat plantings ahead of average, and improving US winter wheat crop ratings adding to the negative tone.
EU crop estimates continue to decline with reports that 6-7% of the EU winter wheat area has been lost to the severe winter weather and will be re-seeded with spring crops (barley and corn). The potential of a record US and global corn crop (increased plantings due to winter grain losses) means that, unless there is a major crop problem, corn may lose its leadership in the market place, replaced by soybeans or even wheat, as 2012/13 is looking more friendly.
In the UK, a technical squeeze on the May 12 Liffe wheat contract looks imminent with first tender day two weeks away and a large open position still evident. UK wheat is now more expensive than French wheat which, unless we have run out (not a likely scenario given that we are only in April), is unsustainable.
OILSEED MARKETS - Willie Wright, Oilseed Trader
- The USDA reported their S&D figures this week, further underpinning prices in the oilseeds/soybean sector with continued strong demand coming from China.
- Soybeans should be well supported in the medium term although much of the production problem in South America will be priced into the market.
- Crude oil has been less of a driver in the oilseeds sector recently with prices moving sideways–lower. The Americans have been threatening to release oil stocks onto the market to suppress prices. This has been interpreted as more of a vote buyer for the incumbent President rather than a prude economical move, as strategic oil stocks would need to be replaced in the future. There are still geo-political fears priced in the crude market which are supporting these price levels.
- Rapeseed prices in Europe continue to power ahead with May Matif futures touching a 14-month high of €508.75 per tonne. There is no doubt rapeseed is being well supported by soybeans and this will continue to be for some time to come.
- We have also seen rape oil prices falling to parity with soya oil prices - or even to slight discount - which, in theory, should favour fresh buying in rape oil over soybean oil. The market in old crop rapeseed feels tight in the nearby positions, even with European crush demand being pared back slightly, there are rumours of Australian canola being resold by crushers, which may make us more reliant on domestic production in Europe.
- Crush margins remain under pressure which has reduced demand slightly but not sufficiently to ease prices.
- Macro-economic factors reared their heads again last week with a Spanish bond auction being 50% undersubscribed and poor US non-farm payroll figures out at the end of last week.
- We are not out the woods yet in the wider economic climate and, with the sharp fall in equities, it wouldn’t take much to spook the markets and return the commodity sector to a "risk off" environment.
Summary
In the last USDA report, the market was surprised by sharply lower predictions for soybean plantings in the US and the tight old crop ending stocks.
In Europe, the old crop market on the Matif has reached a contract high of €502.25 but, in theory, should come under pressure due to falling crush demand, the arrival of now unwanted Australian canola and the prospect of higher than expected end of season stocks.
