Gleadell Market Update

Special ‘Cereals 2010’ Edition

9-10 June 2010

David Sheppard, managing director, 01427 421222 david.sheppard@gleadell.co.uk

EXPORTS

As we enter the last month of the marketing season, Gleadell have been extremely active in finding and developing markets for UK cereals, pulses and oilseeds within Europe and further afield.

Over 750,000mt of feed wheat, uks and ukp milling wheat, feed barley, malting barley, human consumption and feed beans, oilseed rape and oats have been shipped by Gleadell to 14 countries – ranging from a groundbreaking 50,000mt feed wheat vessel to the Philippines – to all but one of the UK wheat cargoes sold to Morocco this season, and many other cargoes to EU member states.

This has been achieved despite a much lower UK wheat crop whilst feed barley exports have been dramatically higher and we have been active in the following UK ports Immingham, Grimsby, Kings Lynn, Great Yarmouth, Lowestoft, Ipswich, Dover, Chatham, Southampton and Avonmouth.

For the coming harvest, Gleadells investment in our new Grain Terminal at the Port of Great Yarmouth signals our continued commitment to the export market and its important role in accessing international markets for UK farmers.

FEED WHEAT

Wheat markets across Europe moved rapidly downwards as rain fell over north west Europe during the Bank holiday weekend and again at the beginning of this week. In the UK, some of the rainfall was patchy but the fact it fell at all was taken as a sell signal.

Sterling has firmed against the Euro and US Dollar over the past ten days from its recent lows Sterling has recovered by 10% versus the Euro, which in round numbers is a 10 per tonne price reduction for UK cereals.

US Corn, Soya and Wheat crops remain in mainly good to excellent condition and US markets are struggling to move anywhere but lower as a result.

In summary, after a dry April and May, some crops look a lot better and, hopefully, we will have fairly good growing conditions up until harvest. However, the crop is not yet in the barn and the next six weeks are just as important as the last six weeks. The recent, rapid turn around in prices may be too much, too fast and farmers have not to date chased prices lower. However, neither have consumers started buying new crop grain to any great extent either. The fundamentals of supply and demand remain bearish and we shouldnt expect a sustained rally unless we see a widespread late crop problem.

Jonathan Lane, trading manager, 01427 421222 jonathan.lane@gleadell.co.uk

OILSEED RAPE

New crop rapeseed futures have been relatively range bound this week with the influence of the outside markets, currency and weather forecasts dominating market movements. However, the old crop market remains underpinned by the unexpected tightness of old crop supply.

Prices have subsequently appreciated considerably during the last month as trade shorts have scrambled to cover their commitments to the crush but, for those few who still have old crop seed to sell, we would recommend that they sell it now as harvest in southern France is only a couple of weeks away and the tightness that has supported the old crop market will quickly be alleviated.

New crop development across Europe is generally good, with the exception of France where ongoing dry conditions south of Paris are expected to be detrimental to yields. In the Black Sea region it has been generally dry. The prolonged winter resulted in a higher plant mortality rate than hoped and, subsequently, farmers have had to re-plant spring crops. The Ukraine is becoming increasingly important to the EU-27. Crush processing within the EU is expected to reach 23mln/t next campaign versus an intra EU production that we are currently forecasting at 20.5mln/t. On this basis, the EU will need to import 2.5mln/t and a significant volume of this import requirement will come from the Ukraine and the balance from Australia and some volume from Canada

However, as well as some production issues in the Ukraine, the EU is also suffering from the weakness of the single currency versus the US$. The current Euro base prices that are trading within the EU are not high enough in US$ terms to attract these necessary imports, and the last cargoes of new crop rapeseed that we have heard trade in the Ukraine were sold to Pakistan!

Crush margins within the EU are currently reasonably good, indicating that processors could stomach the necessary increase in seed prices (unless we see a resurgence in the /$ which currently looks unlikely).

Given current parities, Euro based EU rapeseed looks too cheap. However, the UK farmer is currently suffering from the added complication that is brought by Sterling. The continued appreciation of Sterling continues to weigh on UK prices. Improving economic data combined with the ongoing issues in Spain and, of course, Greece continues to push Sterling higher versus Euro and, whilst the Euro based continental rapeseed market should ultimately trend higher, the UK market is being held back by the continuing appreciation of Sterling v.s. the Euro.