What to watch: With UK harvest underway, the trade will be watching for quality and volume
The UK market has continued to gain support from Europe.
World wheat production forecasts have dropped following drought across major global exporters.
And European rapeseed prices were the ‘only real bright spot’ in the oilseed markets, with early harvest data showing heavy yield losses for many EU countries.
Nov 18 LIFFE wheat futures closed on Wednesday, July 18, at £171.5/tonne, a rise of £5.75/t on the week
The UK market continues to gain support from the surge in European prices, linked to declining crop prospects in France, Germany and eastern parts of the Eurozone.
With the UK resigned to remaining a net importer during the 2018-19 marketing season, the market is currently priced to find supply from other origins, notably France, as Denmark and other possible EU supplying nations have their own supply issues.
With the relatively high price of feed wheat, imports of maize, especially into the north of the country, are looking more competitive and may reduce animal feed and industrial usage of wheat at facilities able to accommodate both commodities.
Also supporting farmgate levels is the slip in the value of sterling, as the Government seems to move from one issue to the next regarding Brexit.
With harvest getting underway the trade will need to establish the quality, and more importantly, the volume of this year’s wheat crop.
Very early cut wheats have indicated good quality, although the volume is too small to set a precedent.
With supplies tighter than normal coming out of the 2017-18 marketing season, the likelihood of an early harvest, together with increased shipments of new-crop French wheat later this month, will boost availability and ease the pressure in finding supplies for early August.
The July USDA report confirmed recent private estimates of lower EU production. They dropped the crop to 145 million tonnes, which is down 4.4mt from the June USDA and 6.6mt lower than last year’s crop. This is not as low as Strategie Grains’ number of 33.2mt but it is below the French Agricultural Ministry at 36.1mt.
The USDA also put production for the Former Soviet Union (FSU) nearly 21mt down from last season. Russia is struggling with more heavy rain this week, which is unhelpful for the wheat harvest and is raising flags over potential quality issues.
As harvest progresses, yields will be under close scrutiny across Europe, as will qualities. Some lower proteins have been reported in the South West of France, but early results in the North look like they will be higher, which is the opposite to a normal year.
It happens once a month all year long, but following weeks of drought across major exporting countries, the July WASDE report was highly/rightly awaited by the trade and the US agency did not disappoint.
For wheat, the world production was lowered by more than 8.4mt, of which 4.4mt in Europe, 2mt in Australia, 1.5mt in Russia and 1mt in Ukraine, from last month, the biggest reduction for the July report since 2002/03. The reduction in production was expected by the trade but not to such extent with ending stocks pegged at nearly 261mt or 1.6 per cent below expectations and down 4.6 per cent year-on-year.
The situation could be even tighter if the Australian dryness is taken into consideration as the 22mt crop is considered to be too optimistic, while El Niño, set to arrive in September-October, could lead to an intensification of the drought. In other terms, the stock-to-use ratio for the top eight exporting countries of wheat would drop to its lowest level since the 2007/08 campaign, when Chicago wheat traded for the first and last time ever above $13/bu (nearly £250/t).
Further support would also come from the maize market with the USDA estimating world stocks to drop nearly 40mt, around 21 per cent, from last year to a meagre 152mt, the lowest level since the 2012/13 campaign.
On the oilseeds markets, US soybeans/meal/oil as well as Canadian canola prices all fell heavily again last week. The US soybean complex continues to be pressured by beneficial recent rains and a weather outlook into early August devoid of any notable threat.
Uncertainty over how the trade war between China and US President Donald Trump will play out alongside recent USDA data highlighting a big lift in 2018/19 soybean ending stocks are both keeping buyers sidelined.
Canadian canola values responded negatively to conducive weather conditions apparent over the main production areas. With palm oil prices slipping back too, the only real bright spot was for European rapeseed prices, which have been supported by early harvest data showing heavy yield losses for many EU countries, including some early-cut UK samples.
With disappointing yield reports on the Continent, ODA has revised forecast 2018/19 European rapeseed imports to more than 4.3mt (4.22mt last year). Canadian C&F canola values are currently competitively priced to meet this European import business, now being about $10/t cheaper into Rotterdam than domestic European supplies.
Australian C&F Rotterdam [import prices] remain uncompetitive, as their ongoing drought provides a price floor in their domestic market.