DavidSheppard, Gleadells Managing Director, comments on the wheat market:
USDA increases UScrops/stocks record global wheat/corn crops projected
Russianto boost trade (wheat exports) with Egypt
UkrAgroConsultraises Ukraine 2014/15 grain export forecast to 32.5mln t due to better-than-expectedcrops.
Ukraine grain exports jump as farmers accelerate salesseeking funds
LowerEl Nino threat seen improving Australian wheat outlook
Frenchfarm ministry raises 2014 wheat crop estimates to 37.3mln t still belowanalysts mixed quality
EU / UK wheat harvest quality still uncertain as rainkeeps falling
Algerian 2014 grain harvest may fall to 3mln t in2014/15 imports will need to rise
US corn plantings predicted to fall in 2015 Brazilianplantings also projected lower.
Although the USDA reporteda corn yield lower than many expected, it still projected a rise in US stocksand record global wheat/corn production. With analysts expecting a furtherincrease in the corn yield number in September following more detailed farmsurveys over the next few weeks, the potential remains for record crops to groweven more.
The fact that the numberwas lower and corn futures hit contract lows prior to the report provided somebuying interest, which will, at best, stabilise the market as the currentweather patterns would still support strong crop ratings and yield potential.
EU markets remain a qualityissue and, even with the French export silo quality now sorted (feed wheatspec), MATIF looks over-valued. Pressure will continue to grow on EU markets asincreasing crop/export projections come out of the Black Sea region. EU feedwheat demand was increased in the USDA report, lowering corn imports to balancethe books, but given the vast amount of feed grade wheat washing across theEU, this could still be well understated.
The UK wheat harvest hasreached a key point. Earlier results were promising, albeit with variableprotein levels, but with the recent spell of wet weather across much of the UK,wheat quality is at risk with the crops left in the field.
As we have mentioned inprevious reports, a quality UK crop would allow exporters to tap into marketsusually sourced from France. Current weather conditions could place some ofthis business at risk. Yesterday we saw DEFRA release its provisional crop areaestimates for 2014, placing wheat area (England) at 1.791mln ha, down 37,000hafrom the AHDB/HGCA planting survey released in early July. While not a hugechange that would equate to 300,000t working on a 8t/ha yield projection.
In summary, crops aregetting bigger. The USDA report did little to encourage US funds (who aremassively short) to panic, and current weather conditions would suggest thenext bearish push will come from the Southern Hemisphere.
Short-term Black Sea cashwheat will find buyers (but they have to with the volumes projected) and EU stateswill continue to work out what they have (quality-wise) and how much of it. Allmajor grain exchanges are currently trading close to contract lows, but withfurther crop increases expected in future USDA reports, the contract lows looklikely to be tested.
Jonathan Lane, Gleadells Trading Director,comments on the OSR market:
Soybeanshave continued to weaken following the latest USDA report and continued goodweather in the US. With a large US crop looming there is little bullish news tobreak the bearish trend.
= The MATIF rapeseed contract has alsoweakened over the week with the large EU crop continuing to weigh on prices. InEurope and the UK the physical market is fairly quiet with a lack of farmerselling across the Continent. Domestically the market has firmed with merchantscovering short positions. We feel market direction is now harder to call and inour opinion the question is at what level will farmers begin to sell seed.
Sterling has weakened against the Euro this weekfollowing some slightly disappointing UK economic data.