What to watch: An expected increase in UK production this harvest is keeping pressure on new crop prices
Record high June temperatures across central and western Europe last week could prove damaging for wheat and maize crops.
The USDA acreage report was probably one of the biggest statistical surprises for grainmarkets in recent history.
And after sinking to seven-month lows at the end of last week, Malaysian palm oil prices notched a health gain to start the week.
Nov-19 LIFFE wheat futures closed on Wednesday, July 3, at £150.25/tonne, down £1.25/t on the week.
As the EU heatwave receded, so have grain prices. Markets that were buoyed up on weather are now concentrating on more fundamental factors, which remain bearish.
An expected increase in UK production this harvest, along with the lack of competitiveness of UK supplies against other feed origins and new-crop maize imports, is keeping pressure on new crop prices.
As for old crop, growers are taking stock of remaining on-farm supplies and some tonnage is becoming available. However, in certain parts of the country where demand remains sluggish, even these limited amounts are enough to push levels close to new crop values.
Looking beyond harvest, questions still remain over Brexit. Both contenders for the Conservative party leadership/Prime Minister position still believe they can renegotiate with the EU, but have stated that they would be prepared to walk away without a deal.
This is creating unease in the city and on the currency markets.
Although a weaker pound would support farm-gate prices, the prospects of a no-deal Brexit would have greater ramifications for the UK grain trade, as the UK would have to start trading on WTO terms after its departure from the EU.
European wheat markets eased early this week following the impact of the latest quarterly USDA ‘stocks and acreage report’ which was published last Friday.
Traders expected to see the report reflect the historically difficult US corn drilling situation with average trade estimates of 87 million acres.
However, the report shocked the market with a significantly higher 91.7 million acres.
This triggered an immediate sell off in futures markets. US farmers have indicated to the USDA this was the area they intended to plant to corn but it is not known whether or not they have been able to achieve this yet.
Therefore this acreage could be a significant overstatement. Subsequently the USDA has said that it will survey farmers across 14 states again in July to establish an accurate corn planted area. This data will not be released until August 12 and will keep markets nervous in the meantime.
Record high June temperatures were felt across much of central and western Europe last week and could prove to have been damaging for wheat and maize crops. Some French wheat crops were reported to have turned from green to white in the space of a week indicating significant heat stress and likely yield loss.
In its latest estimate, the EU Commission cut EU-28 wheat production by 1.5 million tonnes to 142.3 million tonnes. Although well above last season’s 128.8 million tonnes this does not factor in this latest heat plume.
Global markets have been following the US weather story closely and last Friday, the USDA released its acreage report which was probably one of the biggest statistical surprises for grain markets in recent history: the 2019 US corn planted area was pegged by the US agency at 91.7 million acres (Mac) or nearly 6 per cent above the 86.7Mac trade estimate.
As a result, CBOT corn traded limit down on the news although it has now started to recover, bouncing off its c$420/bushel technical support.
Operators are still very sceptical about this ‘highly optimistic’ figure due to the fact that nearly 17 per cent of the 91.7Mac or 15.3Mac was still intended to be planted during the survey which was conducted in the first two weeks of June. The USDA is conscious of the difficult situation and it has decided to collect updated US plantings data in 14 states which will be released in August.
The USDA could also trim its 2019 US corn yield forecast with only 56 per cent of the crop rated ‘Good/Excellent’ as of the end of last week compared with 76 per cent last year and 72 per cent on average. The ratings are now set to improve amid a drier/warmer outlook which will also result in rapid winter wheat harvest progress.
In Kansas, wheat yields are still reported to be excellent although some doubts persist regarding the quality.
With the Continental rapeseed crop at maturity, the recent heatwave that spread across the Iberian peninsular through France and into Germany is not likely to have had a material effect on rapeseed yield or production. Output has already been slashed in Europe, to decade lows of around 18Mt.
EU imports will need to be ramped up, but Canada is waiting in the wings with a greater export availability, following restrictions placed on her exports to China. The Aussie canola crop is also likely to be significantly larger than last year, when drought plagued much of the country.
After sinking to seven-month lows at the end of last week, Malaysian palm oil prices – the cheapest veg oil – notched a healthy gain to start the week.
Optimism about thawing trade tensions between the US and China helped support CBOT soybean oil prices, in turn, rescuing palm oil values. Palm exports remain sluggish (down 20 per cent in June from May) and the seasonal uplift in production is likely to keep the market oversupplied in the short-term. As such, prices should struggle to rebound significantly.
In France, it is reported that energy giant Total has fired-up its new 650,000t/year biodiesel plant in the south of the country. One of the largest biodiesel crushers in Europe.
Its feedstock is likely to be dominated by imports of cheap palm oil, rather than locally produced rapeseed. I can sense the ‘gilets jaunes’ mobilising already.