US maize values remain low and very close to triggering the EU minimum maize import levy.
Current market demand uncertainty, along with large market carries into new crop, would imply there remains enough old crop tonnage around.
As energy markets reel under a huge drop-off in demand, the knock-on effect of reduced corn (maize) usage in the ethanol industry has raised fears of significant oversupply.
Continental Europe and Black Sea countries have only received 20-30% of normal rainfall in the last 30 days.
Nov-20 LIFFE wheat futures closed on Wednesday, April 22 at £168.95/tonne, a rise of £3.95/t on the week.
UK markets continue to be largely pushed around by external factors. The May 20 ICE futures contract hits first day tenders this Friday. The anticipation is that we will see many retenders along with some more original store tonnage.
The current market demand uncertainty, along with large market carries into new crop, would imply there remains enough old crop tonnage around – the May 20/Nov 20 spread hit £15 earlier in the week while May 21/ Nov21 was trading at -£21. The question is can the market really justify such big carries in either direction and are consumers really that keen to cover next year’s demand at current prices?
There are loads of trading opportunities but the focus will start to home in on weather, crop size and alternative imports. Meanwhile US maize values remain low and very close to triggering the EU minimum maize import levy. This calculation could remain front and central to many traders’ minds in the coming year if US domestic maize demand remains subdued due to the impact of Covid-19. Loads of uncertainty should create opportunities for those who go looking for it. Keep safe.
Cecilia Pryce, Openfield
The impact on external global markets from the coronavirus has increased the pressure on agricultural commodities, affecting consumers, traders and farmers.
As energy markets reel under a huge drop-off in demand, the knock-on effect of reduced corn (maize) usage in the ethanol industry has raised fears of significant oversupply, especially as US farmers have begun planting a further 97 million acres for the coming season.
US corn prices have fallen close to $3/bushel, a contract low, and the overall supply forecast is likely to provide some resistance to higher wheat values.
The recent main talking point regarding old crop wheat is a comment by Russia’s agriculture ministry that it will halt exports once the country’s 7m tonne export quota is exhausted, probably around mid May.
Ukraine and Kazakhstan are also operating under export restrictions, so the move would leave just the EU and the US open for business. This has created some market support over the past few days.
Apart from the maize influence described above, new crop is all about weather. Crop conditions and prospects have fallen recently, with US winter wheat ratings hit by recent frosts and continued dryness threatening the crop across much of northern mainland Europe and into the Black Sea region.
If insufficient rains are seen into mid-May, crop forecasts will start to be trimmed lower.
Russia remains the unknown, as current estimates put the 2020 wheat crop anywhere between 76-84mt, again though, governed by the prospects of needed rain in the forecast.
David Woodland, ADM Agriculture
European (and world) wheat markets leapt higher at the start of the week, snubbing the carnage in the oil market. Weekend affirmation by Russian authorities that, at the current wheat export pace, their export quota would be fulfilled by early-May, boosted ideas that EU (French) and US wheat would attract more demand at the back-end of the season. However, exporters have again simply front-loaded their sales ahead of the restrictions. While robust, little additional demand has been created.
Perhaps more relevant to price direction are spring weather conditions across much of Continental Europe and Black Sea countries, which have only received 20-30% of normal rainfall in the last 30 days. Crops in our region need rains immediately; none more so than in the UK and Europe, which is already likely to see a year on year wheat production drop of over 12mt. Some rains are forecast in the week ahead, but much more will be needed. Are we entering into a fully-fledged weather market?
In the UK, old crop wheat prices are trading at a very substantial discount to European wheat values (>£20/t). As we witnessed in September and October 2019, at this wide spread, we anticipate a surge in demand at east and south coast ports for late-season UK supplies for export.
Rupert Somerscales, ODA
The 2020 EU rapeseed crop is unlikely to recover much this year with planting conditions having already led to cuts in the overall acreage and now drought and insect pressure causing further yield pressure. In its most recent report, COCERAL pegged the bloc’s crop at just 17mt vs 16.7mt last year.
Based on the recent weather conditions, with French farmers reporting frost damage and the German cooperatives association (DRV) indicating that rain was needed soon, with a winter rapeseed crop estimated at 3.3mt vs 2.8mt last year, the 2020 EU harvest could well drop to a fresh 15-year low.
However, the record 2019/20 EU rapeseed imports of 5.1mt (against 3.5mt last year) combined with negative crude oil prices has capped any rally in price, particularly on old crop. The soon-expiring May-20 Euronext contract has already recovered some ~36€/t (£31.2/t) from its mid-March lows, however, a recovery of only £15/t has been seen ex-farm due to the strengthening pound.
The full impact of the Covid-19 outbreak on the global economy is still difficult to assess, yet for the first time in history WTI crude oil traded in negative territory on Monday. As such, the biofuel outlook/demand is set to remain bleak and a severe drought this summer in the US as well as large Chinese soybean purchases would be required to significantly push the price of the European oilseed up.
Benjamin Bodart, CRM AgriCommodities