What to watch: The US and China ‘truce’ has boosted soybean prices but the ’no harm period’ is only for 90 days
In the UK, uncertainty in global markets and the situation on Brexit is making traders cautious.
Rapeseed prices rise on renewed EU protectionist aspirations.
A record Brazilian soybean crop was still on the cards, and could start being harvested at the end of the month.
UK LIFFE wheat futures for May 19 closed on Thursday, December 6, at £175.60/tonne, a rise of £2.20/t on the week.
Global grain markets continue to face uncertainty leaving traders very cautious.
Weekly concerns have been centred around buyers’ ability to pay, plus the extra concerns around access to shipping papers from some origins. When you add this to trade negotiations and the continued uncertainty around Brexit it hardly encourages taking on extra risk.
The market is also constantly looking at domestic consumption and prices, never certain that published data is really reflecting what is happening at farm level.
Next week sees the December USDA report which may start to correct some of the trades' concerns around shipping numbers and maybe Southern Hemisphere crop numbers.
With winter approaching and many European countries finally seeing some rain, the focus after the holiday period may be more on trading new crop rather than old, but with 18/19 carryout numbers still looking tight few may have the desire to trade harvest positions until they see how winter crops over-winter and spring crops get planted.
Meanwhile, some EU trade may remain frustrated until the endless Brexit issues are ‘sorted’, which currently look as they may never be achievable.
Matif wheat futures have traded slightly higher this week but overall the market has remained in a tight range with little fresh news.
It has been another slow week for EU exports. Brussels reported 209,000t of wheat exports this week, taking the season total to 6.89mt.
This is 30 per cent down on last season’s year to date export pace.
Meanwhile, Russia is still exporting at a rapid rate and the EU is finding it very difficult to compete. This could all change if Russia introduces export restrictions. Speculation rumbles on about the likelihood of this happening, but until Russia actually puts something in place the story is a moot point.
Analysts, Cocera has lowered the EU soft wheat crop by 1.3mt to 128.6mt. Prospects for crop ‘19 wheat have been boosted by the arrival of significant rainfall across most of Europe which will replenish soil moisture.
At last weekend’s G-20 summit in Argentina, the US and China made good progress re the trade tensions which started during the spring of 2018.
The truce between the two largest economies has given a boost to soybean prices and broadly speaking to commodities, but the 'no harm period' is only for 90 days.
On the news, Chicago soybean prices rallied to a near four-month high, although China is yet to book new vessels from the US.
Additionally, the South American soybean crop has benefited from near-perfect growing conditions so far and a record Brazilian harvest of up to 130mt is still on the cards according to local sources - if realised, Brazil would become, for the first time, the largest producer of the ‘green gold’ which could start being harvested as early as at the end of the month.
Despite political instability in the Black Sea region, wheat remained unmoved this week due to the fact that Egypt, the largest importer in the world, is having difficulties opening letters of credit on more than 900,000t of wheat, of which some have already been delivered.
Based on the relatively tight ending stocks in key exporting countries and the slowdown in Russian wheat exports, the downside remains fairly limited for wheat.
Rapeseed prices made solid gains earlier in the week, aided by renewed EU protectionist aspirations to curb cheap biodiesel imports, alongside positive signals from the G20 summit, held at the weekend.
If approved by member states, the European Commission hopes to reinstate import duties on Argentine biodiesel imports that were scrapped earlier in the year, following a successful complaint by Argentina to the WTO dispute panel.
Meanwhile, after Trump tweeted positive news on trade discussions with China, agri-markets initially responded with gusto to the upside.
But the euphoria was short-lived, with Chicago bean futures walking-back their initial gains. Even if China began to import sizeable volumes of US beans, it will be too little, too late to meaningfully tighten the US soybean balance sheet and substantially lift prices. Freshly harvested South American supplies are only a matter of weeks away.
Prices for palm and soybean oils rose on their respective markets, supported by a rebound in crude oil prices.
Meanwhile, down-under, officials forecast canola production 39 per cent lower year-on-year, at 2.2mt. This compares to USDA forecasts of 2.6mt and ODA’s 2.1mt. The USDA has a lot of work to do to catch-up to reality.