Grain Market Report - 17th May 2013

David Sheppard, Gleadell’s Managing Director, comments on the wheat market.

Wheat

- USDA projects record US and Global 2013 corn output at 359mln t and 969mln t respectively. Global wheat output estimated at a record 701mln t.

- Ukraine’s 2012/13 grain exports reach 21.3mln t, including 6.6mln t of wheat – this compares with 18.7mln t in 2011/2012.

- SovEcon sees Russia likely to export 1mln t of grain in May-June; this will exceed official forecasts.

- Brazil facing a flood of corn as second crop develops – total crop is seen at a record 78mln t.

- Egypt plans to purchase only 4-5mln t of imported wheat this year as it expects higher local production.

- USDA reports just 32% of US winter wheat crop in good/excellent condition – mainly due to a further deterioration in the Hard Red Wheat crop.

- USDA reports corn crop 28% planted against 85% last year and 65% as five-year average – the slowest pace since 1984.

- China’s 2013-14 corn imports estimated to rise by 85% despite forecasts of increased production to 214mln t.

The market expected big crop numbers from the USDA, and the report did not disappoint! The forecast for record US soybean/corn crops, along with record global wheat production, has projected a bearish sentiment on markets.

However, the slow pace of US corn plantings, poor new crop US wheat ratings and reports of dryness in Southern Russia/Ukraine and Australia means traders are cautious about taking aggressive short positions.

European values have mainly drifted lower on weaker US markets, although some support has been evident from the lower exchange rate against the US$. EU exports continue their strong pace, although these may temper with the likelihood of increased shipments coming onto the export market from Russia during May/June. If crop potential in Europe is realised, export markets to N Africa and within the EU to Spain could be fiercely fought over.

The UK remains installed as a major importer, with imports to the end of March reported at just over 2.1mln t. Shipment programs are already in place for the remainder of the season, as the UK milling industry looks to offset the poor 2012 harvest quality. Additionally, with talk of UK/EU harvests expected ‘later’ this season, old crop stocks will have to extend further into the 2013/14 marketing year, supporting further imports.

In summary, it all looks pretty bearish. The ‘record’ crops reported by the USDA will come under much scrutiny in the months to come, as many believe the slow US corn planting pace will eventually trim acreage and yield, and that the ‘optimum outlook’ for global wheat production is too high.

One could argue a good case for a 25-30mln t drop in global corn output, along with a 10-15mln t drop in global wheat output, given current weather problems, although losses of these proportions could be more than offset by a reduction in the projected 110mln t increase in total grain usage!

The big caveat is, of course, that we still have some time to go, and weather to experience, before crops are made.

Jonathan Lane, Gleadell’s Trading Manager, comments on the OSR market:

-It’s been a fairly slow week on oilseeds with the fundamentals relatively unchanged. The now familiar story of tight old crop bean supplies against the large South American crop continues to be the main talking point with old crop beans firming against new crop. The National Oilseed Processors Association released the April crush figures, which came in below expectations, but had little effect on the market. The attention is now turning to US plantings.

- MATIF rapeseed has gained around 7 euros this week, ticking higher on low volume trade and aided by the weakness of the Euro/US$. This has had little effect on UK domestic prices as the market is dominated by merchants shortcovering on old crop. The export market remains an option for old crop but there is insufficient volume coming off farm for this market to become liquid. We feel there is little reason for farmers to continue to hold old crop seed.

- On new crop OSR we still have the combination of a lack of crush demand and a lack of farmer selling. With the exception of the known problems in the UK and some problems in areas of France, the European crop on the whole is looking in very good condition. Crush margins remain poor for OSR and rapemeal/oil remains expensive compared to bean and palm meal/oil.

- With weak economic data from France and Germany, sterling remains firm against the Euro hindering domestic rapeseed prices.