What to watch: The Brexit saga rumbles on causing uncertainty for the UK grain trade
UK wheat has recovered from a near two-month low as sterling plummets.
On global markets, there is no shortage of wheat, but demand is limited.
And European rapeseed prices gain on disappointing crop results.
Nov-19 LIFFE wheat futures closed on Wednesday, July 17, at £148/tonne, up £3/t on the week.
After falling to a near two-month low last week, Nov-19 LIFFE feed wheat attempted to recover amid a struggling sterling, although the £149.50/tonne mark still acts as a strong ‘technical resistance’.
The Brexit saga continues with the ‘Boris vs Jeremy’ fight in full swing, although the two Conservative opponents agreed they would not accept the future ex-Prime Minister Theresa May's Northern Ireland backstop terms.
It translates into a heightened risk of a no-deal Brexit which pushed sterling below the $1.24 level for the first time since April 2017, which is good news for UK grain exports, but not so much for fertiliser imports.
The winter barley harvest is now making rapid progress in the eastern counties, where yields are generally reported to be good and continue to put pressure on the physical market with feed barley (ex-farm) hovering over £120/t for harvest movement, compared with more than £135/t last year.
For wheat, crop conditions remain mostly favourable across the country with vegetation density better than both last year (unsurprisingly) and average. Consequently, the spread between Dec-19 Euronext milling wheat and Nov-19 LIFFE feed wheat is now trading at a three-year high of about £16.50/t (Euronext over LIFFE) for this time of the season.
The good harvest conditions recently experienced in Europe mean there is now just 10 per cent of the French winter barley crop to go, alongside good wheat harvest progress further north.
In Germany, the barley harvest is also nearing completion, with some central regions already seeing some early wheat cut.
While proteins are on the low side at these early stages, the extreme heat seen a few weeks ago does not appear to have had too much of an obvious yield impact.
Russia is about 35 per cent harvested so far on wheat and, although yields are low, the quality is high. Similar is also being seen in Ukraine, where harvest progress is recorded at 45 per cent done on wheat, 55 per cent on barley and 59 per cent on rapeseed.
Last week, the United States Department of Agriculture (USDA) dropped world wheat production by 9 million tonnes, with reductions noted for Russia, Ukraine, Europe, Canada and Australia. The 10-day forecast does show good harvest conditions are set to continue in Western Europe, although it will be slightly cooler and wetter than normal in the East.
In summary, harvest conditions are good overall. While yield has been pegged back slightly in most regions, with nearly 40 per cent of the world’s wheat already harvested, it will be the largest crop on record.
USDA gave the markets a jolt last week, reducing the Russian wheat crop more than expected and raising US exports.
However, after a brisk start to the new marketing year, US exports have since slowed and still carry a hefty premium against other origins.
The US corn story is not over yet, with the trade sceptical of the recent official planting figure. Any future cuts in area or yield will tighten the US balance sheet and provide spill-over support into the US wheat market.
The Russian crop, trimmed to 74mt, is still below local estimates (75-78mt) although it appears that the adverse weather conditions in June did affect yield. Quality remains higher than expected.
The fact Russia has a quality crop is causing its own issues, as growers hold onto supplies, hoping for more money. However, this leaves exporters either paying up for above-export-quality wheat, or pricing high, losing export competitiveness. It will be interesting to see how this year’s crop is marketed.
Elsewhere around the globe, Australia is still seen suffering from a general lack of moisture which is threatening crops, while India’s monsoon has finally arrived, but accumulated rainfall is seen well below average. However, Argentine farmers continue to sow what looks like a record wheat area.
The weather will still have its say on the final US spring crop out-turn and wheat crops in the EU, Russian and the southern hemisphere.
At present there seems no shortage of wheat, although demand remains lacklustre and export books are virtually empty.
European rapeseed markets enjoyed a positive week, with MATIF currently about €5/tonne higher than week-ago levels. As crop results from across Europe and the Black Sea flow into the market space, traders are having to contemplate worse than hoped for results.
Yields across the Black Sea are disappointing, as they are also across swathes of continental Europe. EU imports may need to be revised higher than the 5.5mt most currently forecast.
However, China has reportedly ramped up its acquisitions of Ukrainian seed and this will reduce its exportable surplus available for others, making EU crushers more reliant on Canadian and Australian supplies.
In the UK, the sharply weaker pound/euro rate has allowed cash rapeseed prices to levitate higher than they have done on the continent. Crops are currently being harvested across the South and East, but it is too early to make any concrete judgements on UK production.
The UK will likely have imported about 230,000t of rapeseed over the 2018/19 season, the same ball-park figure we imported in the previous two years. With a much smaller crop size this harvest, our rapeseed import figure will need to rise significantly.