A little warning from the IGC…

The last seven days have brought an ultimately bearish week to the grain markets. London LIFFE futures for old crop wheat have fallen by around £5/T on the week previous, whilst new crop values have fallen slightly less at around £2.50/T.

The London LIFFE wheat future for May 13 closed at £191.90/T on Friday evening – £3.60/T lower than the week previous and the lowest close for a front month since August 2012. It appears that after six months of all time high values for old crop wheat, we are back to the prices levels we saw back in the first week of last year’s harvest. However, despite the lower values, end-user demand has continued to be thin with Ensus (the bio-ethanol plant at Wilton) having closed down completely (at least for the time being anyway) and feed homes looking to be fairly well covered for the time being with imported European wheats.

In opening trade this morning, old crop futures are trading £1/T higher at £193/T. In ex-farm terms, spot collection feed wheat would make somewhere in the low £190’s/T depending on crop quality and farm location. Movement further forward would perhaps offer a couple of pounds more, but once again buyers that far forward are reluctant to secure large quantities as values continue to slide. As for anything with quality, full specification group 1 varieties are valued between £207-10/T ex-farm, whilst low specification group 1 and 2 varieties would make between £5-7/T less. As for biscuit wheats, a rather large arrival of French soft wheat into the Liverpool docks last week has seriously weakened demand in opening trade this morning. In theory, good quality biscuit wheats should still make £200-5/T ex-farm, but would struggle to compete with the above.

Meanwhile, the London LIFFE wheat future for November 13 closed at £182.20/T on Friday evening – £2.25/T lower than the week previous. Trade volumes have more or less been the same this week with end-users continuing to make post-harvest cover whilst farm-sellers are gaining the confidence to begin marketing next year’s crop – £175/T ex-farm is hardly a bad place to start for many growers.

Rainfall over the weekend was extremely well received although Saturday evening’s freezing temperatures have caused some concern for plants on higher land. The forecast is however slightly better for the week ahead with milder temperatures and a drier outlook expected; bitterly cold winds are however expected to continue until at least mid-week. Wider Europe has also had a better week allowing significant progress to be made with spring plantings, particularly in a much milder and drier Southern France.

Current values for new crop feed wheat are around £170/T ex-farm for harvest collection, with feed barley at a £15-20/T discount (depending on quality and farm location). Movement around October/November would realistically make somewhere around the £173-5/T ex-farm mark – still the highest pre-harvest ex-farm levels on record.

The release of the International Grain Council’s (IGC) initial forecast for the 2013-14 season towards the end of last week is the main culprit for the increased pressure we have seen added to London wheat futures over the last few trading sessions. The estimates (which are now available to view in full via HGCA.com) are based on a yield in line with the five year average.

WHEAT:

Global production is forecast at 680M/T, 4% higher than this season (2012-13).

Total harvested area is expected to grow in most major regions aside from the US – the impact of drought and cold                                                                                                                                               weather are a concern for both the development of winter crops and the timeliness of spring plantings.

EU wheat production is expected to increase to 130M/T (this season we produced 123M/T) despite the cold weather.

Over in Russia, mild conditions have prompted good harvest prospects. Conditions are also said to be good in the Ukraine.

Canada are expecting a 12% increase in wheat plantings – 26.7M/A worth. Much higher than what the trade were expecting.

Global consumption is forecast at 678M/T, only slightly higher than this season.

MAIZE CORN:

Global production is forecast at a RECORD 939M/T, 10% higher than last year’s drought suffered crop.

Whilst much-needed rainfall in the US is beneficial to both developing crops and spring soils ready for maize corn, it is seriously hampering plantings which have fallen to a historically low pace. However, with the planting window still open for several more weeks, the IGC still expect a record US maize corn harvest of 357M/T, up 30% on the year.

Global consumption of maize is forecast to increase by 6% to 912M/T. 2013-14 is therefore expected to be a surplus year for maize corn which, if fulfilled, would allow stocks to recover significantly.

The above is of course massively speculative – it is far too early on in a season to predict exact acreage, yields and final tonnage. It is also too early to say what level of consumption we should expect as this is often determined by price. It is therefore important to consider the above as an incentive to manage risk; the acreages in the ground are huge and if yields are at least in line with the five year average, we could be looking at a rather large global grain mix (composed of both wheat and maize corn).

I add this because it is easy to look at the above and think ‘they said the same last year and wheat prices ended up at £235/T’, when in reality if the weather had played ball, the estimates they initially made wouldn’t have been far wrong. The initial acreage, yield potential and level of winterkill predicted was mostly correct, it was the unforeseen spring weather around the globe that completely rocked the initial estimates.

Use these forecasts as a warning; this is the potential of the 2013-14 season.

Elsewhere, OSR markets have also drifted over this last week and the outlook for the remaining months of the season is mixed. Apparently (according to grimoney.com), Argentine farmers have only sold 26% of their new crop soybeans  (this time last year we were up to 46%) so far. Heavy export tax and a poor exchange rate are all discouraging farmers from selling their soybeans for export in US dollars. This can have too likely affects; 1.) Argentine exports will weight on the market for a longer time than normal as export sales will probably occur in a steady stream – there could be a lot of Argentine soybeans left to play with when the US harvest starts or 2.) Argentine farmers may have to be persuaded to sell either by a decrease in tax, or by law, which would mean the usual shortage will occur prior to the US harvest.

Currently, old crop OSR stands around the £385/T ex-farm mark after peaking at £390/T at the beginning of last week. New crop would meanwhile make around £350/T ex-farm for movement off the combine.