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An eye on the grain market - April 29 update

Some welcome rainfall in the UK has continued to influence prices, but in the EU and Black Sea more is needed if yields are not to be downgraded further.

Russia’s announcement that it is set to suspend all grain exports until July 1, saw world wheat prices initially jump higher on the news, but improved weather forecasts reversed the market’s enthusiasm.

 

This week saw the minimum maize import tax regulation kick in, limiting cheap corn imports which could undercut domestic EU cereal prices.

 

Europe’s wheat production is currently down more than 10 million tonne on last year and US winter wheat plantings are at record lows, with some threatening weather on the cards.


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What to watch

 

World consumption of oils is forecast to decrease by up to 500,000/t compared to 2019, due to less biodiesel and reduced requirements from restaurants and the wider food industry.

Nov-20 LIFFE wheat futures closed on Wednesday, April 29 at £161.80/t, a fall of £7.15/t on the week.

UK: Weather continues to drive current prices

UK: Weather continues to drive current prices

With nearly six weeks of dry weather, the UK is finally getting some welcome rains. The weather market is very much the driving force for our current prices. The UK LIFFE May-20 futures contract has seen a circa £7/t increase in a week before correcting lower as rain fell.


Eyes are on the Black Sea and southern Russia where the lack of rainfall is a concern for yields and has supported values. Russia, one of the world’s largest exporters, has put a halt on grain shipments in an attempt to preserve their stocks until harvest in July.


The coronavirus crisis continues and has had a heavy impact on the US ethanol market. It is reported that 40 per cent of ethanol plants have now paused their production, with many others now shifting their production to the manufacture of hand sanitiser for the forceable future, thus putting pressure on maize markets.

 

With crude oil trading at negative values last week, we are clearly in a very strange time. Old crop oilseed rape values remain unsupported as poor EU demand weighs on prices. With a current £10-12/t spread between old and new crop, producers and merchant traders are rolling tonnage to next season.

 

Frederick South, CRM

Global: Fundamentals remain unanswered on either side of the global balance sheet

Global: Fundamentals remain unanswered on either side of the global balance sheet

Arguably, the big news story of the week came from Russia, where authorities are set to suspend all grain exports until July 1, once its new export quota has been shipped out (soon). World wheat prices initially jumped higher on the news, but improved EU/Russia weather forecasts in the last few days reversed the market’s enthusiasm.
Despite a smattering of rain this week, our region’s crops (EU/Black Sea) will require supplemental rains in the weeks ahead if yields are not to be downgraded further. Russia’s (currently +/-77mt) wheat crop is frequently made or lost in May/June, not April. Europe’s wheat production is currently down more than 10mt on last year and US winter wheat plantings are at record lows, with some threatening weather on the cards.
Global grain markets are also struggling to assess the level of demand destruction stemming from Covid-19 as slaughterhouses, restaurants, mills and pubs close their doors, and corn-based ethanol demand evaporates. There are no precedents to how this pandemic affects the global trade in grains.
As movement restrictions are eventually lifted and Northern Hemisphere production numbers are narrowed towards a consensus, we will have more clarity over the direction for grain prices. Until then, market uncertainty will remain elevated and that implies ongoing higher price volatility.

 

Rupert Somerscales, ODA

European: Impact of Covid-19 on demand prospects remains unknown

European markets have been closely watching the weather – ever hopeful for rain.

 

The recent forecasts have shown that many across Europe have had rain in the last few days but as is usually the case at this time of the year – more is always ideal.

 

The concern around crop establishment and potential will stay with us all for a while longer. In a world full of modern gizmos, trying to accurately predict crops remains a gamble.

 

For every plus story there is a negative and the reality is quality matters just as much as quantity and that then becomes a function of weather closer to harvest – the next 10/12 weeks are likely to be an unpredictable weather market. The impact of Covid-19 seems to remain unknown regarding demand prospects.

 


Supply lines seem to have ridden out the immediate shock and the ‘new normal’ will be what analysts try and predict next. This week saw the minimum maize import tax regulation kick in.

 

The calculation reflecting US corn delivered to Rotterdam may be far from perfect and built off an historical intervention price, but it does its job by limiting cheap corn imports which could undercut domestic EU cereal prices.

 

The parameters are known, and traders can clearly identify when it will hit and at what sort of level and what origins it will affect. This week also saw Saudi buy some July/August wheat, which is anticipated to be executed from Germany. Let us just keep hoping for more rain and good quality and a harvest we remember for the right reasons.

 

Cecilia Pryce, Openfield

Oilseeds: Consumption estimates fall on the back of reduced demand

Oilseeds: Consumption estimates fall on the back of reduced demand

World consumption of oils is forecast to decrease by up to 500,000t compared to that seen in 2019, due to less biodiesel and food demand.


In the UK, vegetable oil demand remains weak due to the reduced requirements from restaurants and the wider food industry.

 

With lockdown and social distancing guidelines still in place, it is not known when this demand may pick up or return back to ‘normal’ levels, although it is thought it will run through until the second half of 2020 at least. As a result, UK crushers are also running below full production.

 

In Europe, the poor autumn planting conditions have been well documented. There are now reports of recent frost damage, with a lack of rain seen until this week and crops experiencing a short flowering period. As such, predictions are that the crop will reach 16.7mt – a 14-year low.

 

The weaker sterling has provided some positive news for long holders of UK oilseed rape, but prices near £300/t have been heavily impacted by the widespread reduction in demand.

 

Andrew Hill, Frontier

Organic arable: Milk cutbacks take further liquidity out of the market

Organic arable: Milk cutbacks take further liquidity out of the market

The market remains challenging. The strongest demand recently has been for milling wheat with some samples previously dismissed as feed coming back into contention. Perhaps organic shoppers have been more active home bakers but the organic milling sector seems to have proportionally higher capacity to supply retail packs than their conventional counterparts.

 


Flour millers report they are well covered, and wheat is now being bought for June delivery and beyond. One miller has stopped buying for the time being whilst it takes stock but if lockdown continues it may be encouraged to buy more. There have been some challenges with sufficient packaging to cope with the additional demand being experienced.

 

The impact of lockdown on the dairy sector is significant with dairy farmers feeding less to make most use of available forage as milk sold above profile is unprofitable. Dairy farmers are reporting they are cutting back on feed and seeking to maximise production from forage. This has meant farm buyers are few and far between and has taken some further liquidity out of the market. Feed compounders remain cautious due to this uncertainty and report good cover through to new crop.

 

Selling opportunities will be limited so the recommendation would be to sell old crop feed grains when opportunities present. The recent gains in sterling value have cheapened imported wheat and we have recently received our lowest bid of the season at £242/t delivered for organic feed wheat. Our intelligence is that this did not trade but it gives an indication as to where buyers are seeing the market.

 

Reports of both winter and spring drilled crops are good and growing well through this warm spring and this recent rain will have certainly helped.

 

Andrew Trump, Organic Arable

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