The past week has proved somewhat better for beleaguered UK farmers who have been struggling to gather in their rain delayed harvests. The key issues emanating from all analysis done so far on the UK harvest include the variability of both yield and quality with specific weight remaining the biggest single matter. Early data includes more of the better quality milling wheats, and final yield and quality results, when known, could well deteriorate as there will be a higher proportion of feed grains in the overall result.

An additional blow has emerged from recently harvested wheat with reports of loads being rejected at destination for high counts of DON, toxic fungal residues, which despite the high fusarium levels this season have not proved problematic so far.

As of Tuesday, UK was 55% harvested according to ADAS reports; this compares with an average of 85% and the forecast settled weather should see the pace of harvesting improve at last. In continental Europe the French and German harvests have shown marked improvement over the last couple of weeks and quality wheat is freely available and “capping” UK prices, which hit import parity recently. The likelihood of a greater volume of UK imports in the coming season has increased significantly as a result.

In key Black Sea exporting regions the Russian and Ukraine harvest outlook and forecasts continue to deteriorate. Latest IGC wheat output estimates place Russia at 41 mmt compared to 56.2 mmt last year and 53.2 mmt 2009-11 average. Ukraine fares little better with output estimated to be 13.0 mmt compared to 22.3 mmt last year and the 2009-11 average of 20.0 mmt. Last week’s news that there will be no curb to exports by Russia continues to “feel” wrong given their forecast output and current pace of sales.

In recent days we have seen Russia win two Egyptian tenders amounting to 360,000 mt both for shipment in October. Russian exports are currently running at around 3 million mt/month over the July to September period and their own self-imposed export volume of 10-14 million mt is fast being consumed. In addition Ukraine this week won a tender for 55,000 mt to Egypt, again for October shipment. It does appear however that Ukraine has residual stocks from last year to help sustain a higher export pace than would be possible from this years drought depleted crop.

Latest news from Egypt would indicate a further 240,000 mt October shipment and 60,000 November shipment tender award has been made to Russia in addition to the above.

Ukraine has picked up 55,000 mt for November shipment and Romania was awarded 60,000 mt each for October and November shipment. Clearly the world’s largest importer has its sights set on the best value grain and the Black Sea powerhouse is continuing to benefit.

When the Black Sea does finally dry up, in grain export terms, buyers will have to turn to EU sources then US as these fit the profile in price terms with EU prices remaining at cheaper levels than US supplies at least for the present time.

Attention is now turning to key southern hemisphere wheat producers Australia and Argentina where smaller wheat areas than last year have been sown. Despite their small percentage of global output (6.4%), the two accounted for some 23% of exports last season. Growing conditions will therefore be watched very closely given the potential bottlenecks that exist in northern hemisphere export corridors.

We continue to believe that markets have not yet completed their upside potential; the current dip in prices represents an opportunity to take further strategic cover if gaps exist or to extend cover into deferred positions.