What to watch: Donald Trump’s trade wars are having major impacts on the market, with no-one quite sure what will happen next.
UK markets have been warned to ‘get used to’ price volatility as they react to politics.
Market dynamics are expected to change in the EU, with Spain anticipated to produce more and import less and German, Swedish and Danish wheat production to fall.
And the oilseeds markets have been fully focused on ‘trade’ issues.
Nov 18 LIFFE wheat futures closed on Wednesday, June 20, at £156.75/tonne, a fall of £3.75/t on the week.
Geopolitics are playing an increasingly influential part in grain/oilseed price determination. Good luck to anyone that thinks they know what Donald Trump will do next.
Price volatility is a variable that has been largely absent for UK grain markets, but in the last few weeks we have seen a notable pick-up in it.
New crop LIFFE wheat has rallied strongly, then tumbled back £4, and as I look at my screen, is trading £2.35 higher today.
Granted, we are tracking closely the daily gyrations in France; our reference market now that we are around import parity, but, nonetheless, price volatility is a feature of our market that we will have to get used to throughout the 2018/19 season.
What is not in dispute are the tight fundamentals of the 2018/19 UK wheat balance sheet.
Another year in which imports will have to be around four times exports. The traditional high quality milling wheat imports aside, these additional imports will need to be feed quality; mostly, but not assuredly, from the continent, hence why the MATIF wheat market will be the key metric by which our domestic wheat values will be determined.
The EU is faced with different dynamics to 2017.
Spain will be importing much less and is expected to produce up to five million tonnes more grain after beneficial rainfall throughout the growing season.
German, Swedish and Danish wheat production is expected to fall to the point where the latter two countries may well be net importers during this coming season.
In the middle is France, where wheat production is set to be robust at circa 38mt, but where quality concerns founded on stormy wet weather conditions, have been alleviated to an extent by a recent drier, warmer spell of weather.
Of course, on top of this are the ongoing trade disputes, and the EU-expected retaliation to US steel tariffs, some of which may be seen in tariffs applied to US agricultural exports to the EU, including maize.
In addition, Brexit negotiations are due to restart at the end of the month. In the context of all of this, market conditions are volatile, trade flows are hard to predict, and harvest has begun in southern and eastern Europe.
Trade and tariff disputes between the US and China have significantly impacted commodity and equity markets over recent days and wheat markets have moved lower as a result.
Uncertainty over policy and trade decisions (and the potential impact this could have on exports for next season) has unsettled markets.
It has seen US funds heavily selling wheat and moving from their long positions of a week ago to shorts of around 17,000 contracts.
Politics aside, the fundamentals remain supportive, with weather still giving cause for concern in a number of regions.
Australia has had some light rain in the West but much of the country remains dry which is a threat to establishing wheat crops.
Ukraine and Russia’s winter wheat crops are experiencing hot and dry conditions at a crucial stage and further heat looks to be building in parts of Russia.
India’s monsoon has been weak so far with insufficient moisture and Brazil remains dry which is a threat to corn crops.
In the US the weather is more favourable for corn and spring wheat crops. The winter wheat harvest is now 27 per cent complete, with yields generally in line with expectations.
Global oilseeds markets have been fully focused on ‘trade’ issues. The continued uncertainty around the imposition of Import Tariffs on US products entering other countries has kept the markets very nervous.
There have been big price swings as the trade and funds try and second guess the impact. Ultimately, there should be enough of most products to feed the world but who eats what and from where and at what price is still to be finalised.
There seems to be no guarantee that traditional trade flows will ever be the same again. The situation gets more complicated when the various components are then taken on their individual merits.
Do consumers have the ability to buy beans or do they need meals and oils? Furthermore, can they substitute soya with another commodity and if so is it financially sensible?
The price spread between CBOT soya and Matif OSR has widened dramatically. Its back to levels seen last year but does that encourage EU consumers to eat more soya at the detriment of OSR?
The uncertainties will keep everyone on their toes for some time to come, but ultimately animals need feeding and soymeal still remains a wonder food for livestock, and some humans who don’t eat livestock.