Gleadell Market Report - 24/06/2011

GRAIN MARKETS - David Sheppard, managing director

WHEAT

Ukraine and Russia see rises in grain harvests for 2011 as rains improve the condition and outlook of crops, driving off fears of a severe drought.

Ukrainian farmers have extended the grain sown area by 3% to 15.6mln/ha in 2011, including 6.9mln/ha of wheat.

Russian farmers had sown 29.3mln/ha with spring grains by last weekend including 13.8mln/ha of wheat. Winter grains have survived the winter well, and everything is in place to ensure that the crop target of 95mln/t of grain set by the Ministry is reached, weather permitting.

Pakistan’s wheat exports, so far, in 2011 have hit an all-time high of 2mln/t, with 3mln/t the official target.

USDA reported spring wheat plantings at 91% complete versus 100% for the 5-year average. The crop was rated 72% good/excellent, up 4% on the week. Winter wheat harvest is steadily moving north in the US with 31% harvested, up from the 22% average.

China’s winter wheat output is poised to rise in 2011 for the eighth consecutive year, despite reports earlier in the season of wide-spread drought conditions.

The market continues to be pressured by short term factors. These are : the arrival of rain across much of the EU and the subsequent change in market sentiment (even if the crops have not been increased substantially), the advent of Russian wheat in the market, macro economic factors (crude oil and other commodities under pressure from liquidation selling) and a general lack of buying interest.

Also, the G20 meeting are looking at methods of constraining high food prices and these proposals may include the removal of some bio-ethanol mandates or subsidies which, if implemented, would impact on corn demand, especially in the US. Once the markets feel that some of the above factors have been resolved; buyers may be encouraged back into the market and we may see a rebound in values. However, this could be a few weeks away, as the Northern Hemisphere wheat harvest is now underway, or due to start in the near future.