What to watch: Australian wheat production is set to rebound more than six million tonnes on improved soil moisture to a four-year high of 21.35mt after this year’s catastrophic harvest.
With the UK at import parity, farm prices will remain influenced by currency fluctuations and price action at other exchanges, rather than domestic issues.
Smaller crops also look likely in Germany and France, with concerns over the health of the French winter wheat crop.
The US reacted to equity markets scoring their biggest weekly loss since the October 2008 sell-off by slashing interest rates by 0.5 per cent, but support to grains was short-lived.
Nov-20 LIFFE wheat futures closed on Wednesday, March 4 at £162/tonne, a rise of £1.50/t on the week.
Another week has gone by and COVID-19 continues to spread rather rapidly outside China with more than 94,000 confirmed cases worldwide and more than 3,200 deaths of which 92 in Iran and 79 in Italy.
As such, fears of a significant global economic slowdown continue to haunt investors and equity markets scored their biggest weekly loss since the October 2008 sell-off which led to the Great Recession. In an emergency move to protect/stabilise growth, the US Federal Reserve slashed US interest rates by 0.5 per cent which in turn weighed on the US dollar and lent support to grains on Tuesday. However, the short-lived wheat rally is now gone as the best cure to solve the issue is a vaccine, not cash injection.
Furthermore, conditions for the 2020 wheat harvest continue to improve (apart from Western Europe) although the tight stocks of the top exporters imply there is little room for any major accident this season. In Russia, weather remains favourable whilst in Australia, wheat production is set to rebound more than 6mt on improved soil moisture to a four-year high of 21.35mt after this year’s catastrophic harvest.
Across the US Plains, conditions have also improved with 43 per cent of the Kansas winter wheat rated good/excellent as of early March compared with 35 per cent the week before and 49 per cent last year.
Finally, the expected large Chinese buying orders have yet to reach the US despite the trade deal agreement having been signed mid-January.
Benjamin Bodart, CRM AgriCommodities
Oilseed rape prices have suffered from falls in palm oil pricing and a strong €/$.
Palm oil pricing appears to be stabilising as a result of Malaysia and India intentions to resolve their trade dispute.
Clearly COVID-19 is impacting more upon oilseeds than grains. However, the tight fundamentals for oilseed rape and vegetable oils should set a floor to the downside with the combination of seeds and vegetable oil shortages expected to remain throughout 2020. The €370 level could be the bottom with a rebound being expected soon.
European oilseed rape production is now forecast at 17mt and only 1.2mt in the UK. As a consequence, roughly 5-6mt of imports will be needed for the EU. Market impact of COVID-19 within the UK has been limited with prices being supported by a very significant fall in the pound.
Gary Phillips, ODA
The UK market remains quiet, reflecting a general lack of selling amidst limited demand.
Cash ex-farm prices remain supported by merchant shorts, especially in the spot position, although more selling activity has been seen in deferred positions, albeit at the market carry.
With the UK at import parity, farm prices will remain influenced by currency fluctuations, as seen over the past week, and price action at other exchanges, rather than UK domestic issues.
The main talking point recently was the release of the updated AHDB Early Bird survey, which as of February 14 reviewed UK farmers’ planting intentions for harvest 2020.
The wheat area was seen at 1.5 million hectares, down 17 per cent from the 2019 June survey. For winter wheat, 93 per cent of the intended area was planted, but only 2 per cent of the intended spring wheat area, which left about 290,000ha that UK growers intended to plant.
Given the current state of many soils, the final planted area will be dominated by weather over the next few weeks. We believe that the AHDB’s projected figure remains optimistic, and that a larger-than-normal area of the UK will remain unsown for harvest 2020.
It is important to be aware of what is happening on the wider global picture in respect to crop marketing and not become blinkered to UK weather-related issues. The UK will be substantially short of home-grown wheat for 2020/21, but the world is forecasting a larger 2020 crop. Markets will continue to trade this fact as traders look to take advantage of the UK’s greater need to import.
David Woodland, ADM Agriculture
Wheat markets have rallied this week, bouncing back from the sell-off that we saw last week as a result of coronavirus.
London wheat futures recovered £4/t from Friday’s low point, also encouraged higher by sterling weakness versus the euro. A settled UK weather outlook is encouraging for potential spring plantings, but winter drilling is now done. Unfortunately, the prospect of a 2020 wheat crop that is little more than half the size of the 2019 crop is a concerning likelihood.
Significant wheat imports next season will be essential, and the value of sterling will be a major price driver. Weaker sterling leaves imports more expensive and allows domestic prices to rise. Despite a small crop, sterling strength would make imports cheaper and pressure domestic prices.
The UK wheat deficit will contribute to an EU soft wheat crop that could be 10mt lower than 2019; with smaller crops also looking likely in France and Germany. There are some concerns for the health of the French winter wheat crop, with ratings there seen at just 64 per cent good/excellent compared to 85 per cent this time last year. This is supporting new crop wheat prices and old crop support comes from the continuing fast export pace. Since July 1, 2019, EU soft wheat exports have reached 19.1mt – up 60 per cent on last year.
Simon Ingle, Frontier