Another, better, week has passed from the perspective of the UK farmer as combines have been working long hours to gather the rain delayed and weather damaged wheat harvest. Empirical evidence is pointing continually to poor specific weights, reduced yields and the need for millers to turn to overseas markets to source better quality whilst, at the same time, reducing their specifications somewhat for what little UK grain they are prepared to purchase.

The most significant news is probably that of the two Egyptian wheat tenders this week bringing their five-week purchase total to some 1.7 million tonnes. Tuesday’s tender saw Russia awarded a reduced 60,000 mt prompting speculation that their offerings were running low; however today’s tender saw Russia awarded 120,000 mt out of the total 235,000 mt, albeit at prices some $6/mt higher than two days earlier. It seems that the Egyptians are looking to capture tonnes before the Russian “pot” runs dry. Interestingly, France has picked up 180,000 mt this week as the Russian / Ukraine / Romanian supplies begin to see prices escalate – probably reflecting overall availability.

The much-anticipated USDA report yesterday was preceded by market prices easing back in advance of the announcement because traders, and the funds in particular, were fearful of what figures might be published. The initial reaction to the report was to see prices dip further; particularly corn where the forecast yield was only marginally reduced from the August estimate. However, the market has regained some of the losses as closer inspection would seem to indicate an extremely tight end of season stock position unless the much discussed price driven demand rationing takes place. Given this outlook, the lack of consumer cover and the reluctance of farmers to sell we continue with our bullish stance and view this pullback in price as temporary and an opportunity to fill gaps and extend cover where appropriate.

From a soybean perspective, the report was “bullish” but could be critiqued from a number of perspectives. The pod weight used to establish yield was left at an “average” level which feels wrong given the dry conditions where it would seem more likely that a below average pod weight would be harvested. With this in mind we would not be surprised if actual yields fall below USDA estimates and the October report shows further cuts. Overall we feel that the outlook for soybeans remains bullish and dips, if they appear, should be viewed as buying opportunities.

Strategie Grains have reduced their estimate for EU corn and wheat output adding pressure to global prices. Corn output was trimmed substantially by 4.3 million mt to a five year low of 53.5 million mt as the persistent hot and dry conditions in south and central Europe last month led to poor grain filling. This leaves the crop some 19% lower than a year ago and leaves the way open for imports to rise to over 8 million mt. Interestingly, this estimate is 3.8 million mt below yesterday’s USDA estimate.

Wheat estimates from Strategie Grains also cut 1.7 million mt from the EU harvest to 123.6 million mt. The commentary continued with a conclusion that exports would have to be cut and usage curtailed if minimum “pipeline” stock levels were to be maintainable. All in all, this can only be construed as “bullish” for prices going forward and we would advise any gaps in cover to be filled on the current price dip.