All eyes on USA and Russia as UK harvest advances

Grain prices have gained more ground as wheat harvest gets under way in the UK and speculation over crops elsewhere keeps markets on edge.

November feed wheat futures were around £190/t as Farmers Weekly went to press on Wednesday (1 August), with ex-farm harvest values nearer £180/t, up about £3 on the week.

The impact of drought on US maize crops still underpins the bullish sentiment for feed grains, with traders eagerly awaiting the US Department of Agriculture’s next supply and demand report on 10 August to gauge the likely impact on supply. The last weekly USDA report showed a further deterioration of US maize, with just 24% of crops rated good/excellent – the lowest for 24 years.

There is also considerable uncertainty over the size of wheat crops in Russia, Ukraine and Kazakhstan. Independent anlaysts Offre & Demande Agricole said that substantially lower-than-expected yields there could significantly reduce the exportable surplus from those countries and drive prices higher.

“In the south of Russia, the country’s largest production area, the harvest is nearly 80% complete, but yields are 25-30% lower than in 2011,” said ODA’s Leo von Kameke. The situation was similar in Ukraine where production would be 40-50% lower than last year, he said.

Russia, Ukraine and Kazakhstan have traditionally accounted for around 25% of global wheat exports, but he reckoned this could drop to less than 15% during 2012.

A report by analyst Agritel said Russian authorities were denying considering any export ban, although the country’s food security committee is due to meet on 8 August to discuss the situation.

“Longer term there is still a firm sentiment to the market, but we can’t rule out short-term downward forces taking the edge off it,” said David Eudall from Nidera UK.

Some crops were already yielding better than expected in France and Germany and it would be a while before an accurate picture of the Russian crop emerged, he said.

Stronger barley prices

Barley prices have also improved over the past week and with ongoing concerns over quality, some attractive malting premiums are available, according to traders.

Feed barley was worth around £170/t mid-week, with malting premiums of £5-10/t for winter varieties and spring barley’s nudging £200/t ex-farm for October/November, said Gleadell’s Stuart Shand.

“Brewers aren’t really interested at the moment as they see the big EU surplus, but distillers are very active in the market for this year and next. Premiums for next year are very good, only slightly less than this year.”

He said winter barley harvest was about 70% complete in the South and 20% through in Yorkshire, although crops had generally fared better further north. Fusarium was a concern and was likely to hit yields, but its impact on quality was unclear, he said.

Anecdotal evidence suggested winter barley yields and bushel weights were lower than last year, added HGCA’s Jack Watts. “Spring barley will be the more dominant driver and if there are quality issues, it will be reflected in premiums.”

Wheat market drivers

Bullish  Bearish 
 Further deterioration of US corn crop possible – USDA supply & demand report on 10 August Recent rain brought some relief to US maize crops 
Russian and Eastern European wheat crop below 2011-12 – speculation over possible export ban  Uncertainty over exact size of Russian and Eastern Europe crops – may be better than feared 
European wheat yields predicted to be lower due to difficult season and disease pressure   French and German yields faring better than expected 
Unsettled harvest weather in many areas  Lower US ethanol demand could reduce pressure on corn 
  Economic turmoil could prompt short-term pressure on futures as funds liquidate long-term positions 


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