USDA expected to raise wheat / corn yields on improving harvest reports / ideal weather conditions
Russian wheat prices continue to drift lower as harvest accelerates / crop forecasts increase
Russia has harvested 20.5mln t of wheat a/o July 17th - yields reported at 3.61t/hectare, up over 13% y/y
Egypt’s GASC purchases 235,000t (120 Russian / 60 Romanian and 55 Ukrainian) for 1-10 September shipment – no French / US offered
French wheat harvest advancing slowly – increasing concerns about damage to crop quality – rising cash premiums for milling quality but feed levels falling
Flood losses prompt a cut to Canada’s harvest hopes – AAFC trims overall production by 3.6mln t to 71.2mln t, down 21% y/y
BAGE forecasts Argentine farmers will plant 4.2mln hectares of wheat, down 100,000 hectares from previous estimate – the ministry estimate is at 4.5mln
The downing of MH17 last Thursday produced a ‘knee-jerk’ reaction as the tragic event pushed all commodity prices higher. However, by Friday’s close the markets had given back all the gains, portraying a picture that Thursday hadn’t happened, a fact that the families of almost 300 innocent victims will always remind us that it did indeed happen. The fall-out from MH17 is less clear, with the US already looking for the ‘smoking-gun’ before throwing the sanctions book at Russia, while the EU, although showing signs of a tougher stance towards Russia, is still aware of the various political, economic and energy ties between the EU and Moscow. Whether the current unrest between Russia and the Ukraine softens or escalates will have a major play in the price direction of all commodity markets, especially if grain export supplies are disrupted, or at worst, halted.
Turning back to the routine market fundamentals, the US markets have continued to weaken, pressured by harvest supplies, improving winter wheat yields and crop ratings which should support a rise in corn / soybean yield projections in the next USDA report.
US exports remain behind the USDA projection, both for old crop corn and new crop wheat, which during harvest should witness increased sales activity which currently is being lost to other origins
EU values had been unchanged on the week, before a sudden rise in futures today took values up about €3/t. Growing concerns over the quality of French wheat has traders looking to Germany in order to secure supplies. If the French do have a major quality issue, this again raises the debate as to whether is it bullish or bearish for MATIF futures. Export cash premiums have risen, leaving MATIF as no guarantee of export quality, and if you have export milling quality, why would one deliver to futures which is only feed wheat with a 76kg spec? Rainfall has swept across much of France, into Germany and then Poland, increasing quality fears in its wake.
UK prices are about £1/t lower on the week, as reports of early wheat being cut keeps prices on the defensive. Old crop premiums have all but disappeared, as market shorts become more relaxed that new crop supplies could fill old crop requirements. With the quality issues in mainland Europe, if the UK ends up with a ‘better-than-feed’ crop, prices could be supported as the UK may be able to tap into some export demand. However, if it is just average feed, the UK has a major problem, as the likelihood of increased ‘feed’ supplies in the EU, and the potential for cheaper corn prices could drive prices even lower.
In summary, EU quality remains a key factor and how this slots in with Black Sea supplies – more EU feed wheat, more Black Sea quality wheat and less Black Sea corn demand. Globally, grain supplies are not an issue, it is just a quality issue. Crops are getting bigger, and if the USDA does increase corn yield (some estimates are at 170bushel/acre) next month, market longs that are still left may be heading for the exit. One crumb of comfort is that markets can’t continue to fall, but even when you are at market / multi-year lows, trying to predict the actual bottom of the market is almost impossible.