What to watch: UK has one eye on currency and one on harvest progress
Wheat yields in the Northern Hemisphere are higher than expected.
European grain prices have continued to edge lower this week.
And lower yields in the UK rapeseed markets mean crushers will be looking to imports.
Nov-19 LIFFE wheat futures closed on Wednesday, August 7, at £143.20/tonne, a fall of £4.05/t on the week.
The UK market remains very volatile with one eye on currency and the other on harvest progress.
With reports of some good yields on wheat and barley and early wheat quality currently holding up well, the real question is what price does UK wheat really need to be?
Ports are busy loading barley to EU buyers and with global corn prices remaining relatively expensive against wheat and barley the demand for non-maize commodities is likely to keep demand good until price relations change.
Domestic UK markets are largely still on old crop wheat and with June usage data and early stock data available, along with June maize imports, the UK will have a bigger carry out/carry in than many would have anticipated earlier in the season.
The UK markets will now have to juggle Brexit uncertainties while watching quality in light of the latest weather which is impacting most of the UK wheat crop which is still standing in fields.
European grain prices continue to edge lower with both Euronext wheat and maize contracts falling to their lowest level since mid-May.
Combines continue to make rapid progress across the continent with impressive wheat yields in France which could result in the country’s second largest crop on record, above 39 million tonnes.
Further east, in Germany and Poland, the wheat crop shows signs of heat damage as it was less advanced when the record-breaking temperature heatwaves hit the continent in June and July.
However, the reduced demand [except from Algeria] despite the weak euro against the US dollar is still burdensome and difficult to ignore. As of August 5, the EU had exported less than 1mt - down nearly 50 per cent on the five-year average and the lowest since the 2012/13 season.
The recent cool/wet weather and record EU maize imports already above the 2mt mark have also weighed on Euronext maize prices which have now fallen more than 5 per cent in the last nine sessions.
In the short-term, the bear trend started last month would only come to an end with a bullish USDA WASDE report to be released next Monday.
Wheat markets have a bearish tone; particularly across the Northern Hemisphere as we go through harvest with yields beating expectations, adding to a more negative outlook.
French wheat production is seen reaching between 38-40mt – well up on last year’s sub 34mt.
On Tuesday, the French Ministry of Agriculture and Food adjusted its estimate up to 38.2mt from 37mt last month while analyst, Agritel sees 39.2mt.
Ukraine wheat production looks to be hitting a new record high 28.5 million tonnes as the Ukraine Ministry of Agrarian Policy and Food unexpectedly increased the drilled area.
Russian wheat estimates continue to range between 75-76mt and although well below the original estimates that were as high as 85mt, this still represents the second largest Russian wheat crop on record.
One factor traders are watching is the pace of exports from the EU and Russia, which so far sit 34 per cent and 20 per cent respectively behind last year.
The United States Department of Agriculture’s report is due Monday which should give more insight into the total US corn area, previously considered to be overestimated following the heavy rainfall during the drilling season which hindered progress and is yet to be fully quantified.
Early projections put UK yields down around 5 per cent on the year, which would indicate crushers requiring more imports to balance the books.
Domestic prices have been supported by the steady fall in sterling.
In Europe, the rape harvest continues to be mixed, although with the French crop seen considerably lower year on year, EU crop estimates continue to fall closer to 17mt.
The possible long-term loss of China as a buyer of US soyabeans has major implications for US agriculture and, therefore, potential knock-on effects across global markets.
Traders are watching for signs of any progress in the US/China talks, which seem to have stagnated at present, and the ongoing Brexit situation is also being carefully watched.
Monday will be an important day for the market, when the USDA updates its 2019 US soyabean acreage, following a new planting survey undertaken in July.
This report, and US Midwest weather, will have a say on final US bean production, but China and Brexit are also very important long-term market drivers.