Grain market report - 1st June 2012
Jonathan Lane, Gleadell’s trading manager, comments on grain markets:
WHEAT
- USDA reports US wheat harvest 9% complete – ahead of normal pace.
- Russian Grain Union estimates 2012 grain crop at 94mln t, including 56mln t of wheat – exportable surplus at 30mln t.
- Ukrainian Agriculture Minister forecasts high 2012 grain harvest, up to 50mln t – increased stocks could help exports reach a record 22-27mln t - mainly maize.
- East Asian feed wheat demand seen falling by 3-4mln t, due to cheaper corn prices.
- Australian farmers hope rain will help wheat yields – rainfall in eastern region, but still dry conditions in west.
- USDA reports corn crop ratings at 72% good/excellent, down 5% from last week due to hot/dry weather.
- USDA reports winter wheat crop ratings down 4% on the week at 54% good/excellent – HRW down 4% and SRW down 2%.
- The European Commission’s crop-monitoring unit cuts its EU-27 soft wheat production estimate by 5mln t to 126.5mln t.
- IGC cuts global 2012/13 wheat production by 5mln t to 671mln t with end-season stocks revised sharply lower at 191mln t, down 15mln t.
Summary
The arrival of timely rains in the Black Sea region and a swift start to the US wheat harvest was enough to drag wheat values off the hefty highs witnessed last week.
The funds covering their record short position over the past week generated little follow-through buying activity, and switched off any potential export buyers, leading to lower values as some profits were banked. Corn is trading at an increasing discount to wheat, leaving importers with a potential lower wheat demand.
Reports out of Russia and the Ukraine still promote good harvests for 2012 (but there is still time until harvest and these reports could be inflated for political reasons), and higher 2011/12 ending stocks would allow exports at least similar to this season.
The EU still operates under a cloud of uncertainty over Greece, fresh Spanish bank worries, soaring Italian borrowing costs and what seems a greater rift between the IMF/CEB and the German chancellor, resulting in the Euro falling to a 2-year low at just under $1.24.
Markets at present seem to be influenced by improving weather prospects and the pace of the US wheat harvest, ignoring the more fundamental concerns of declining US crop ratings.
Analysts believe that the recent rain in the US Midwest may improve crop ratings next week before drier weather is forecast to return.
Over the next 4-6 weeks the markets will remain weather driven, and until better assessments of US, EU and Black Sea crops can be determined, market direction remains difficult to predict.
Willie Wright, Gleadell’s oilseed trader, comments on oilseeds markets:
- Soybeans have trended sideways/lower over the past week, with longs unsure whether to stick with their positions or chuck the towel in at these slightly lower levels. Bulls are not confident of adding to their long position even with Argentina’s declining crop figure and the US in need of some good rains. Soybean prices have also been impacted by the weakening economic crisis and stronger dollar that continues to push commodity investors to the side lines.
- European rapeseed is coming to the end of its campaign, with ex-farm selling both in the UK and Europe slowing down. There are a few producers/co-op’s who have held out for a second bite at the big ticket levels of €500/t in Europe or £400/t in the UK without success so far! Crushers look to be well covered for the remainder of this season and, if there’s a short in the market, it lies with the merchant supply trade who appear to be relaxed with supply options, including Australian canola and European new crop rapeseed production, almost in sight.
- Rape oil prices remain under pressure, which is making some traders sit up as prices are at historically low levels relative to soybean oil. This, combined with poor crush margins, could be seen as a worry to the eternal oilseed bulls although meal sales are strong.
- Macro-economic factors are moving back to centre stage with the spotlight on Spanish banks and Spain’s current debt yields trending towards 7%. Investors continue to move hard cash out of Eurozone banks and out of the Euro currency. This, as well as Greek elections on 17th June, will keep the markets on the defensive whilst investors continue with their ’risk off’ stance.
