What to watch: Cold snap expected in Europe over the next few days.
UK wheat futures are starting to price-in the impact on supply and demand of the Vivergo ethanol plant closure for the rest of the season.
World grain markets are reacting to threatening weather conditions in key regions.
And oilseed markets also continue to watch weather developments in South America.
May 18 LIFFE wheat futures closed on Wednesday, February 21 at £138.85/tonne, a fall of £0.65/t on the week.
Supply and demand balance could change
UK wheat futures are starting to price-in Vivergo's ethanol plant closure for the rest of the season. If this eventuates, then the supply and demand balance sheet would be over half a million tonnes heavier and temper the need for sizeable imports in the second half of the season.
Indeed, a quick glance at the Liffe/Matif May 18 contracts - a rough metric for import parity levels - shows the spread falling sharply in recent weeks.
However, domestic demand continues to run at very impressive levels, notably in the north of the country. As such, basis levels continue to rise across the country as supplies are encouraged from the south and east to northern homes.
Ex-farm prices are near the highest they have been since harvest.
European markets watch weather and currency
The euro has weakened in the last week against the dollar, which along with various tenders has allowed Matif wheat values to creep higher. Algeria is reported to have bought circa 340,000 million tonnes, with the origin likely to remain uncertain until execution.
However, with Egypt also in the market this week for end March shipment, plus Tunisia also looking for wheat, sellers have been keeping a close eye on logistics.
The anticipated cold weather, due to arrive in mainland Europe in the coming days, is starting to cause some concern as to its impact on crops and logistics. The uncertainty over the damage it may inflict on crops is split. Some talk of wet land with no snow cover, which will freeze hard and others seem to be more relaxed.
What is sure is that winter precipitation in Northern EU has not been an issue and there is currently little moisture attached to the coming cold blast.
It may turn out to be good for spring soil conditioning but bad for winter crops. Time will tell but will it be a big enough story against US weather and SAM, to move the markets dramatically?
Wicked weather works wonders
World grains prices continue to gyrate, higher, to the tune of threatening weather conditions across key producing/exporting regions. Led by Argentina, her drought rolls-on into another week and no major rainfall is expected over the next fortnight. High temperatures are also adding to crop stress.
The corn harvest here has just started and early yield results are substantially below average. For wheat, Russian export prices continued to rally, with FOB Novo now atop $205/t, some $5/t above week-ago levels and sitting at around two-and-a-half year highs.
A strengthening rouble, robust international demand and stormy weather at export terminals are all contributing to lifting prices, for what is the cheapest wheat in the world.
In the USA, the HRW wheat crop is struggling to combat the effects of drought conditions that have been established for weeks now. Production forecasts are already on the decline.
Meanwhile, in Europe, a cold snap is expected over the next few days and temperatures may drop to -10degC in Germany, France and Poland. This could lead to frost damage and production downgrades.
All in all, widespread adverse crop conditions have shaken the world grain market out of its winter siesta with a jolt and, with a potentially much tighter world wheat balance sheet looming next season, most of the world's farmers should soon be trading their wheat above cost of production.
South American weather supports markets
Difficult weather conditions in South America are hampering soybean production and supporting oilseed markets.
Chicago soybean futures have trended higher over the last week, with severe dry conditions in Argentina the driving force. The February USDA report estimated 54mt of soybean production but since then, market expectations for the Argentine crop have been lowered to 50mt and now again to 46mt.
The next two weeks will be important for watching how the market develops as the Argentine crop is assessed and losses measured. Brazilian crops may yet compensate somewhat for losses in Argentina, but the continued wet conditions there are starting to compromise bean quality too.
While markets are supported, over the past few months stocks of seed and oil have been accumulated and this does create some ceiling for rapeseed prices, particularly in old crop positions.
In order to see this price support continue, weather concerns will need to continue building. Any changes to the current dry forecast will set the market back and it should be noted that funds have built long positions on the expectation of further rallies.
Should the weather break, they will rapidly sell these positions back.