Gleadell Grains Market Report - 2/09/2011

GRAIN MARKETS - David Sheppard, managing director

Market fundamentals of a ’tighteningquality wheat supply’ and a potential lower US corn crop has seen the marketssupported over the past week, with London NOV11 futures rising approximately’5.

Continued concerns in France and Germanyover the quality of the 2011 wheat crop, where excessive rains will increasethe proportion of feed wheat, has supported the market , whereas the UK crop isgenerally of good quality and we have seen some demand for various grades ofwheat to northern Germany .

Russian interior prices have risen sharplyover the month, as traders rush to purchase wheat to cover export requirements.This rise in price has raised the question of possible ’export restrictions’being imposed later in the year, something currently dismissed by theAgriculture Ministry.

In the US, following the reduction in yield projection for the 2011 corncrop, analysts are already looking for further cuts in the September reportwith a figure of below 150bu/acre being talked. If so, the US will need toration demand, and this will primarily be on the export projection as domesticdemand is fairly robust. Lower exports from the US will increase the demandfrom the EU/Black Sea and this, in turn, should support European feed wheatlevels.

Harvest continues to move forward in the UK, with the majority nowharvested, although the recent rains will increase the moisture content and theneed for drying. Quality is seen holding up well with yields continuing to showimprovement on earlier estimates. ADAS are now projecting 7.5-7.7t/ht, justunder the 5-year average, which should result in a wheat crop similar to lastyear’s production of 14.9mln/t.

In summary, it is a ’quality wheat/US corn story’ with both scenariosadding support to market values. We feel both factors will linger on for sometime before they are resolved, the short-term prospects remainsupportive.

OILSEED MARKETS - Jonathan Lane, trading manager

The US soybean market broke out higher from its three-month 1300-1400ctrading range last week, and this has been the catalyst to push the wholeoilseeds complex higher in the last few days. Ongoing concerns regarding shrinkingyield and lower production prospects have pushed prices up as the market triesto ration demand and stimulate increased planting in South America in order tomake up the potential shortfall in the Global supply and demand picture.

In Europe, the rapeseed balance sheet still looks tight even with2-3mln/t of rapeseed crush capacity switching to sunflower seed. However,even with this switch, the EU will need to import around 2mln/t of thirdcountry rapeseed. At the moment, we look comparatively cheap versusother origins from Canada or Australia suggesting that we need to see prices goup further to attract the necessary imports.

However, whilst the fundamentals of the market look supportive, we haveto be wary about the Marco situation. We have seen in recent week how suddenfalls in the stock market and worries about the global economic situation canaffect our markets, and this has to temper any underlying bullish impedes.