Gleadell Grains & Oilseeds Market Report 15/07/2011

GRAIN MARKETS - David Sheppard, managing director

WHEAT

French wheat yields are not as bad as feared ’ rainfall in June has allowed yields to recover, giving specific weights higher than normal in the northern part of France ’ protein contents are at 12-13%.

The French Farm Ministry has raised their supply projection for the 2011 wheat harvest to 32mln/t.

Strategie Grains increased its estimate for EU-27 grain production for 2011/12 by 6.6mln/t to 282.3mln/t.

Soft wheat production, due to excellent conditions, is now projected at 130.2mln/t, 4.6mln/t higher than previously thought and 2.9mln/t higher than in 2011/11.

Ukraine faces more grain-damaging downpours that may cause crop losses of up to 30%. The USDA attach’ said that overall production will decline from levels expected before the onset of the rains.

SovEcon forecast the Russian grain harvest rising to 87-92mln/t due to improved weather conditions. Wheat production is estimated at 55-58mln/t and that should support competitive and aggressive exports.

Australian wheat crop could face a dry spring, with reports that a third of the NSW crop has been lost to the worst plague of mice ever seen.

Agriculture Canada has cut its harvest estimate for all-wheat production to 24mln/t, from 25.5mln/t previously.

BAGE lowered its forecast for Argentine 2011 wheat area to 4.7mln hectares, down 5% from its previous forecast.

CNGOIC stated China’s 2011 wheat production will be up 1.4% at 116.79mln/t, corn up 2.4% at 181.5mln/t.

USDA increased US 2011 corn production due to higher acreage and closing stocks. US wheat production was also raised as a 1.5bu/acre rise in yield offset a 1.3mln acre reduction in planted area. Export projections for both corn and wheat were enhanced following recent sales to China.

The monthly report by the USDA, as expected, showed increased US production for both wheat and barley based on the acreage report released at the end of June. However, with exports increased, the US have their hats pinned on increased Chinese demand. Projected corn stocks at the end of 2011/12 were lower than trade estimates. This then produced a rally in US corn as the perceived increase in demand encouraged buyers along with reports of hot dry weather during flowering.

Wheat prospects in the EU have improved over the past weeks with production forecasts for the major producers now showing signs of increasing. With the apparent cheap offers of Russian wheat, this extra EU tonnage should keep markets in check during the short-term as harvest progresses in the northern hemisphere regions. Long-term, the sentiment regarding Australian and Argentine production is not as bearish as first thought. Dry weather in Australia and lower planting estimates in Argentina are potentially lowering earlier record production forecasts, which may add support as the new season progresses.

OILSEED MARKETS - Jonathan Lane, trading manager

US soybean futures bounced this week following another surprise from the USDA in their corn balance sheet. The soy market played the role of follower with a mostly neutral USDA crop report for the soy market, but worries about hot, dry weather continuing into the key pod filling stage in August has also underpinned prices.

In Europe, the Motif rapeseed futures is little changed on the week. Lower crude oil and the impending harvest have been offset by the rally in US soy market. Yields in France and Germany appear to be better than expected and we have increased own EU-27 crop production estimates. Rain in southeast Europe and the Black Sea area is hindering harvest and could cut yield potential in these regions. In the UK, farmers appear to be generally pleasantly surprised with the first cut crops.

The tight S&D for EU rapeseed should underpin prices but, with crush margins under severe pressure, the demand side of the picture is unclear and the macro-economic situation is also a great concern to the long term health of all markets. Better yields may bring some harvest pressure, but seasonal demand should bring higher prices in the medium to longer term. However, at this stage, the markets overall direction is far from clear.