What to watch: China and Canada’s trade dispute rumbles on
UK markets remained pretty static as they waited on Brexit. Global markets were ‘priced for perfection’ and European markets were focused on old crop.
Nov 19 LIFFE wheat futures closed on Thursday, April 4, at £146.50/tonne, a fall of £0.25/t on the week
For a second consecutive week, domestic prices remained pretty static on both old and new crop, with the former trading at more than £160/t spot and the latter about £140/t for Nov 19 movement. Top-spec milling wheat is still in good demand, with premiums standing at, or close to, their campaign highs.
Further Brexit news either ‘good’ or ‘bad’ - depending on where you sit - is highly awaited while Theresa May is once again (at the time of writing - Wednesday, April 10) on a trip to Brussels asking for a new delay, but the lack of clarity is paralysing the entire supply chain.
Interestingly though, according to yesterday’s HMRC trade data, the UK remained a net importer of wheat for a 27th consecutive month in Feb 19, but the gap between the exports and imports was at its lowest since January 2017.
It was not necessarily because of strong exports (i.e. less than 40,000t), but rather a slowdown in imports which dropped for a third consecutive month to their lowest since January 2016 i.e. less than 90,000t compared to more than 274,000t last August. However, the cumulative July to February wheat imports remain at a five-year high.
Regarding maize imports, a slowdown was also noticed between January and February 2019, but a second consecutive monthly record was scored with nearly 245,000t imported of which 58 per cent was from Ukraine. Consequently, the cumulative July to February UK maize imports of 1.9 million tonnes remain well above the 1.6mt 20-year high and they keep a lid on barley prices.
European grain markets are mainly focused on old crop grain shipments and availability.
The run of ships loading in France is keeping the ports busy, but with new tenders for old crop creeping out of the woodwork on a regular basis, the question is can the EU reach the USDA’s expected shipping tonnes? Price, quality and logistics will determine this.
France, on paper, still needs to move wheat, but as the weeks tick on, the domestic market does not seem too keen to give up grain when bid for, begging the question about real old crop availability and size of end-season carry out. New crop remains a question of crop prospects.
With many areas around the EU suffering from relatively low rainfall, crop numbers for 2019/20, crops are being trimmed by many, although much can change between now and harvest as we all found out last year.
This uncertainty is also holding up willingness to price and, with the first global USDA report for 2019/20 being published next month, it will be interesting to see if this stimulates trade.
While the rest of the world is looking at crop developments across the northern hemisphere with an increasingly concerned eye, it appears US speculative funds are seemingly oblivious and are happy maintaining their significant short positions in Chicago and Kansas Board of Trade (KCBT) intact.
Our sources across Eastern Europe have already dramatically slashed their yield outlook for new crop, having only received only one-tenth of their normal rainfall over the last few months (similar to last spring).
In the northern part of the US, the opposite climatic conditions prevail. Here, thanks to flooding, saturated fields and forecasts for additional rains in the next 10 days, questions over the US spring wheat and corn area to be planted are mounting.
These issues are being drowned out by the USDA’s latest plantings and S&D reports, which are, at best, a month behind the curve and do not necessarily reflect the reality of conditions on the ground.
Markets are currently pricing-in a world wheat crop some 30mt above last year’s wheat crop, i.e. no crop problems anywhere across the major exporters. The world wheat balance sheet, however, will go into the 2019/20 season with an opening stock around 30mt below last season.
As such, if a crop problem develops between now and, say, July, then the global wheat stocks/use ratio tightens dramatically and we are back into the ‘higher price, higher volatility’ scenario we saw develop in 2018/19.
Global grain markets are currently priced for perfection.
There has been significant news on the global oilseed market this week, with China banning Canadian canola following a fall-out over intellectual property.
40 per cent of Canada’s canola exports are usually destined for China and, at present, the commodity is priced at a large discount to European rapeseed.
Interestingly, as Canadian canola is genetically modified, in Europe it cannot be used for food production, but it can be included for biodiesel.
Across Europe, growing conditions are reasonable, but rain would be welcome. This is very much the case in the UK. Markets are closely watching to see whether there is any further impact from cabbage stem flea beetle as we head into the height of the growing season.