Gleadell Grains & Oilseeds Market Report - 5th August 2011

GRAIN MARKETS - David Sheppard, managing director

WHEAT

Continued hot weather in the USA has firmed US markets over the past week, although EU prices have not followed on a like for like basis. It appears as if the whole world grain complex is stacked on top of the outcome of this year’s US corn crop and therefore all market participants are watching, with extreme interest, crop ratings and weather forecasts. It looks a bit like a ’stack of cards market’ – meaning that if the US Corn crop is better than expected, or US wheat yields are understated, the whole market could be undermined. Conversely, if the corn crop is poorer than expected the market would rally again as US traders are very prone to trading their own back yard and forgetting the wider world picture as importers choose cheaper origins.

Meanwhile, the Russians are hoovering up all tenders and US/EU wheat is too expensive to anywhere but very traditional or captive markets.

In the UK, early wheat samples have proved to be of very good quality, with excellent/unprecedented specific weights, whilst yields have been variable but may perhaps be better than expected. Rain has now stopped play as the British Monsoon has arrived with unwelcome timeliness.

Whilst grain markets have their own powerful dynamics, we have also seen macro-economic factors pile uncertainty on uncertainty. The EU, after kicking the Greek problem into the long grass (thanks to their German friends), are now faced with similar issues in Italy and Spain whilst, in the USA, President Obama and his Republican ’friends’ took it to the wire in raising their debt ceiling. The impact of all this doubt and uncertainty is probably supportive for some commodities versus equities and government bonds. But investors have had their fingers burned by agricultural commodities over the past couple of months and may be rather more cautious this time around – particularly as all the grain fundamentals are not outright bullish.

OILSEED MARKETS - Jonathan Lane, trading manager

At the time of writing, we would estimate that harvest is around 70% completed and we have heard a significant amount of anecdotes about 6t/ha yields. Even if these are the exception rather than the norm, we feel that we can now safely increase our prediction on national trend yields to 4t/ha and this, in turn, has pushed our crop figure to 2.6mln/t.

This is a record and gives the UK with an approximate 600thd/mt exportable surplus but, with Europe as a whole in a deficit situation, this should provide UK farming plc. with an excellent opportunity.

However, in the short term, the bumper UK yields and the better than expected crops on the continent have combined to put severe pressure on the harvest market. Crushers and shippers spot commitments are all but covered and domestic stores are filling up quickly, and the prices for nearby movement are getting quickly undermined.