Gleadell Grains & Oilseeds Market Report - 14/10/2011

GRAIN MARKETS - David Sheppard, managing director

WHEAT

Coceral raises its forecast for EU-27 soft wheat production to 128.39mln/t, from 126.53mln/t.

Kazakhstan plans to raise monthly exports to 1mln/t from November.

Ukraine cancels export duties for wheat and corn, which should boost exports.

French farm ministry raises its soft wheat crop estimate to 34.1mln/t.

Harvesting confirms bumper corn yields in western EU.

USDA reports increased US and Global wheat/corn stocks ’ Global wheat stocks at 10-year high.

HGCA sees wheat availability unchanged year-on-year at 17.8mln/t ’ exportable surplus seen at 2.5mln/t.

Argentine wheat planting delayed by dry weather, in need of additional rain.

China purchases 1.5mln/t of corn and 700-800tmt of soybeans for state reserves ’ more needed?

Russia mulls export duty on exports if they exceed 23-24mln/t ’ protective act to keep grain internally.

Summary

The Chinese purchase, Russia milling export duties and more confidence over the EU bailout of Greece was enough to consolidate prices that then soared ahead of the USDA report. However, a bearish wheat/corn report extinguished any glimmer of a possible short-term market rally. The numbers confirmed there is enough wheat in the world and, unless we witness a major crop problem, the likelihood of another bumper 2012/13 wheat planting campaign should keep prices on the defensive.

OILSEED MARKETS - Jonathan Lane, trading manager

The greatly anticipated USDA October report has been delivered, and for Soybeans this was without much fanfare. US yield came in at 41.5 bushels per acre, 0.3 lower than the previous report, and production reduced slightly by 25mln bushels with ending stocks higher than expected at 215mln bushels. Global Oilseed production now stands at 453.5mln/t with end stocks of 73 tonnes. Having seen Soybeans fall $3 since the September report and the large reduction in spec/fund longs it wasn’t too much of a surprise to see the sharp rally on Tuesday prior to the report. Lower prices have prompted some bargain hunters to come back to the market, including China who bought 700,000 tonnes of Soybeans this week.

European rapeseed prices have been neutral to slightly higher over the past week although we are still trading a largely inverted market with the inversion now spilling from November into February. Once again, we have seen macroeconomic activity calm down for the time being although, until we have a clear path from the ECB/IMF etc, we will still have underlying uncertainty. There are mild production concerns for 2012 OSR crop regarding reduced planting areas in Germany, Denmark, Romania and Bulgaria - this is mainly down to weather. In the UK, Defra have released their latest stats showing record UK Oilseed production at 2,76mln/t up 25% with an average yield of 3.8 tonnes per hectare. With OSR prices looking attractive for the coming year and demand remaining high we expect to see a continued increase in production.

With October USDA figure behind us and a large amount of investor money out of the market, fundamentals will give the market direction going forward and there is no getting away from the strong demand for oilseed rape going forward. From a chart or technical point, oilseed rape looks to be at the top of its price range, although a breakthrough here to the upside could give the market some nearby strength. Talk of higher prices should be tempered by the continued uncertainty in macro events for the time being.