What to watch: Traders will be watching the UK harvest, with early results pointing to lower yields of winter barley with quality ‘better than expected’
LIFFE wheat prices jumped responding to crop concerns in the UK and abroad.
Issues with EU crops have been the biggest driver of prices around the world this week, but are not the only area showing production concerns.
Oilseed markets are being dictated by trade wars and import taxes.
Nov 18 LIFFE wheat futures closed on Wednesday, July 18, at £171.5, a rise of £5.75/t on the week.
UK grain markets rallied hard last week, responding to crop concerns both at home and on the continent. LIFFE Nov18 added over £11 week-on-week, settling at £182 on Tuesday.
While winter barley yields appear to have been quite resilient in the face of the ongoing heatwave, winter wheat yields may not have fared so well. Early results point to yields being between 5 per cent - 20 per cent lower than last year, with lighter land suffering the most, as expected.
Wheat quality is reported to be better than expected, with only low test weights presently a cause of concern. Heavy rains due later this week in the South may alter this picture, though.
Extrapolate early yields into a UK production number and it is clear that wheat imports will need to be substantially above last season and potentially at record levels, surpassing the 2.9 million tonnes imported in 2012/13.
How much domestic demand will need to be rationed and how much of this added requirement will be taken-up by maize imports will be key issues going forward. Currently South American maize can compete into the UK's north east.
MATIF contracts hit €200 this week, a level not seen for a long time.
Continued dryness across much of northern Europe is seen further reducing crop potential, and with reports of heavy sprouting in Russia and the Ukraine the available milling surplus is fast diminishing.
In Germany, where feed values are more than the export milling market, the crop is now struggling to reach 20mt, which is also seen as the potential EU all-wheat exportable surplus, compared with the current USDA projection of 27.5mt.
The French crop is now seen sub 34mt, leaving an exportable surplus that doesn’t need to chase non-EU exports, as demand will be robust from intra-EU destinations.
Recent downward crop revisions in both Russia and the Ukraine have also added support, and the recent rise in the market was demonstrated by the fact GASC (Egypt’s state buyer) paid $16/t more this week than at its previous tender two weeks ago.
Russia was again the main origin, with four cargoes, although two cargoes from Romania and a Ukrainian cargo were also purchased.
With GASC apparently biting the bullet it will be of interest who follows suit. EU and Russian export projections look increasingly overstated by USDA and EU markets have divorced themselves away from Chicago, trading domestic supply and demands, which at present are becoming significantly tighter by the day.
World wheat markets remain supported as adverse weather affects wheat crops in various parts of the world. Issues with EU crops are the biggest driver this week, but they are not the only area showing production concerns.
The Australian Met Office is indicating an increasing chance of an El Nino weather event developing through summer, which typically brings hot and dry conditions. The current forecasts show no rain through to the end of the month.
As a result, some estimates for the Australian 2018/19 wheat crop have dropped below 20 million tonnes. Argentina has drilled 93 per cent of its wheat crop now but ratings have dropped to 37 per cent good to excellent, versus 66 per cent this time last year.
Above normal temperatures in Russia have taken their toll, with wheat yields predicted to be 16.5 per cent down on last year – albeit last year was a record-breaking crop. Ukraine has also cut its crop estimates from 25.5mt to 24.7mt this week.
The US is now 80 per cent of the way through its winter wheat harvest which could create some harvest pressure. In addition, US spring wheat crops and corn crops are looking very promising and this could act as a balance to recent price rises at some point.
Global oilseeds continue to revolve around trade wars and import taxes.
But as everyone knows for every action there is an equal and opposite reaction and US soya farmers are now beginning to feel the pinch, with prices close to decade lows. This low value ironically may fill the gap which has been left by EU oilseed rape shortages.
Analysts continue to cut EU crop numbers and currently it looks like the EU crop could be similar to 12/13. The question at that point is how consumers in the EU will react?
Currently US CBOT soybeans are over $100/t discount to Matif OSR looks rather good value if you can substitute commodities, after all there are no import taxes currently on US soya, just US corn. With recent weather events across the EU, livestock producers would no doubt prefer to see soya to rape meal in rations for several reasons.
Obviously, there will be some inelastic demand for OSR but rationing will need to take place as we have seen over the years.
Caution always must remain just in case South America and Australia have further issues later in the season, but soya could be a saviour this season even displacing cereals.