US drought gives mixed grain outlook

Grain markets are split between the drought-hit wheat areas of the USA and the far better-looking crops of Europe.

US wheat futures have risen to their highest for more than a year, but European markets struggled to follow, rising slightly on Tuesday but falling again on Wednesday.

The Kansas wheat market has risen £54/t since February and Chicago by £40/t, while the Paris wheat futures are up £22/t in the same period and London by £17/t.

A good crop outlook, higher wheat area and strength in both sterling and the euro have combined to limit price increases in EU wheat. Maize remains competitive against wheat, confirmed by continuing growth in import figures.

Grain market factors

  • UK grain uncompetitive on export markets
  • More than half the US wheat area is in drought – proportion in exceptional, severe or intense drought has risen for nine consecutive weeks
  • US corn drilling is behind the five-year average
  • Maize competitive with wheat
  • Russia’s spring drilling ahead of 2013, good progress in Ukraine.

Ukraine and Russia remain important, both in terms of crop prospects and export potential. The next market mover will be the US Department of Agriculture’s world supply-and-demand estimate, which is expected just before European markets close today (Friday).

Meanwhile in the UK the old-crop feed wheat premium over feed barley has grown to anything up to £25/t, reflecting little interest in barley. The discount falls to about £15/t for new-crop.

For harvest, feed wheat is worth £145-150/t ex-farm, while November is £150-155/t.

Growers here remain reluctant sellers of either wheat or barley and the big question is how much wheat is left uncommitted in farm stores.

For new-crop, the £160/t level is an emerging barrier for November 2014 feed wheat futures, so the market will need a continuation of US weather, Ukraine or a new issue to break and hold above it, said HGCA in its weekly report.

“Currently the new-crop market is at £5/t above the running average since 3 September 2013.”

The London November 2014 feed wheat futures contract closed at £157.25/t as Farmers Weekly went to press on Wednesday (7 May) while May 2014 closed at £166.50/t.

Frontier Agriculture said even with this year’s crop issues, the US hard winter crop was expected to be larger than last year’s.

Oilseeds prices remain under pressure from the Chicago soyabean market, a strong European harvest outlook and high Canadian stocks.

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