What to watch: It could be an ‘interesting trading year’ for European markets where historical price relationships could be irrelevant.
Weather U-turn causes quality concerns.
US corn may have a problem, but the rest of the world does not.
And the situation on US soyabean has been driving the oilseed markets.
Nov-19 LIFFE wheat futures closed on Wednesday June 19 at £152/tonne, up 0.15/t on the week.
After a prolonged period of dryness up until early spring which spooked operators who feared a repeat of 2018, Mother Nature changed its mind and things have made a staggering U-turn.
Heavy rains have been observed across most of the country last week resulting in localised flash floods, particularly in the northern counties where quality concerns are now on the rise due to lodged crops.
According to official data, the first half of June 2019 was one of the wettest in more than 30 years with more than 100mm in Lincolnshire between June 1 and 15 compared to just 13mm last year and about 30mm on average.
However, the potential losses in the North could be more than offset by the above average yields expected further south and a 15+mt 2019 UK wheat crop would easily be achievable. From now until harvest, crops only need more sunshine and warmth, precisely what the most recent European weather model has in store for the next 10 days.
On the physical market, an increased demand for feed wheat/barley is currently noticed due to ‘expensive’ maize prices whilst the harvest is just around the corner.
The European grain markets have again struggled to work out if they should try and compete with other origins or plough their own furrow.
US markets started the week firmer pulling the EU values with them but have since put in a downward price correction. Prices of EU wheat were further questioned when Egypt bought a few cargoes of 21-22 July wheat around 210$ cost and freight.
This was reported to be close to $15 cheaper than the cheapest French offer.
This could look like a shock headline, but the position is relatively early for France and with a relatively tight EU old crop carry out matched with now ‘expensive’ imported corn values, it wasn’t much of a surprise for many.
If imported corn values continue at current levels then EU old crop corn should look reasonably well priced and any consumers short of commodities will be looking close to home for supplies. This home shopping could easily put demand back into wheat and barley which will successfully remove the EU’s need to compete heavily with Black Sea wheat short term.
The market should become even more interesting when the real story is known about planted corn acres in the US which is likely to result in an interesting trading year where historical price relationships could easily be irrelevant.
Now that the latest realistic date for US corn plantings has passed, the all-consuming ‘planted acreage’ debate of the last few weeks should fade.
Looking to new crop, on the supply side, the world’s growers will likely produce a record 2019 wheat crop, at well over 760mt. Europe looks to be on course for a decent grain crop, following last year’s disaster.
The Black Sea region will be producing another mammoth grain crop and will be aggressively competing for wheat sales into the Black Sea, Middle Eastern markets, the EU and Asia, likely front-loaded pre-Christmas.
South American corn and soybean crops are also substantial and will also be searching for export markets. Some will head north into the US, but some will also try to gain access into Europe. Down under, winter crops are finally planted and, even with adverse conditions of late, the US is still forecasted to have the largest exportable wheat surplus for the last three years.
On the demand front, question marks remain over Chinese soybean demand, as their ongoing African Swine Fever epidemic shows no signs of abating. Indonesia, the world’s second largest wheat importer, is likely to need 11mt supplies, slightly below the number one importer, Egypt, with a 12.3mt requirement. Philippines will be needing over 6mt imports.
Grains will begin harvesting in our part of the world in the next few weeks. These markets will likely be amply supplied. Meanwhile, our regional grain demand profile hasn’t altered significantly year on year. Heading into extra time, it’s supply 1: demand 0. Prices should act accordingly.
The soybean planting and stock situation in the US continues to be the main driver of the oilseed market this week.
The United States Department of Agriculture (USDA) reported that US soybean ending stocks for 18/19 were now above 1 billion bushels. Ultimately, this carry over stock will continue to keep a lid on prices in the overall global oilseeds complex.
However, soybeans have rallied again in the last few days due to continued wet weather in the US Plains which has not helped the planting pace or the final yield estimates. As a result of this, funds continue to cover their short position in the Chicago Soybean futures markets.
Analysts are forecasting the biggest Ukrainian rapeseed crop on record. Latest forecasts are up to 3.9/4mt, most of which will head to Europe between August and December.
This goes some way to negate the smaller 2019 EU oilseed crop expectation (17.8mt versus 20mt in 2018).
In the UK, a weak sterling is helping domestic prices but this will remain volatile as the political outlook is uncertain.