What to watch: EU export values have dipped meaning that they are now more competitive versus Black Sea prices
Global prices have provided external support to maintain a steady UK wheat market, although balance and market sheets fail to add up.
The percentage of Kansas winter wheat rated Good/Excellent has dropped to 12 per cent from a 39.6 per cent five-year average.
And the Argentine soybean crop is struggling in dry and hot conditions.
May 18 LIFFE wheat futures closed on Wednesday, March 14 at £145/tonne, a rise of £0.25/t on the week.
Since Gleadell’s last UK report in early February, LIFFE has climbed £7/tonne, to its highest level since mid-November. A surge in global prices has provided external support and, even with sterling moving back towards $1.40 against the US dollar, the market remains steady although milling wheat premiums continue to dip.
Chartists would point to levels trading above moving day averages and retracement levels being breached, which is seen as supportive, but the crux of the matter remains a simple one, a scenario of more buyers than sellers.
As the end of the season draws nearer, it is looking apparent that consumers’ coverage is lower for the final quarter, mainly as a result of perceived lower demand and their reluctance to purchase forward on what, on paper, stills looks an oversupplied market.
Long holders have remained proud sellers and the recent price action would vindicate their stance, helped by news that one of the country’s bio-ethanol plants has re-commenced operations, although on what scale and time span remains unclear.
However, as the months have passed, the UK surplus continues to grow as the level of imports swamp what little exports are being executed.
In summary, while the balance sheet tells you one thing, the market is telling you something else. It may be that the surplus of wheat is out there, but may not appear until very late in the season, or even early next marketing year.
Until then the market may stay firm but the fundamentals will rear their head at some stage.
Crops across Europe seem to have come out of the winter in reasonable condition on the whole. Weather conditions remain cold and wet in Germany but there is no major crop concern.
Northern Germany and Denmark have an increased spring cropping area due to wet conditions in autumn, so they will now be looking for conditions to warm up and dry up to allow field work.
Crops in Russia and Ukraine appear to have come through the latest cold spell without too much of an adverse effect and fertiliser applications are reported to be in progress.
Matif wheat futures have been underpinned to some extent by dry weather worries in the US holding prices up overseas. However, EU export values have dipped, meaning that they are now more competitive versus Black Sea prices. The EU needs to pick up some more export demand to avoid a stock build at the end of the season.
Throughout the 17/18 export campaign, the EU wheat has been struggling to find demand. Last week’s USDA report did reduce EU exports but only by one million tonnes. The current annualised pace shows that, in reality, their exports would be another four million tonnes lower than this if the current pace were to continue.
In the aftermath of the March WASDE report, wheat prices consolidated after the strong start to the year. Global ending stocks were raised by more than 2.5 million tonnes (mt) to a new record high of 268.9mt (of which 47 per cent in China) vs a drop of 0.5mt to 265.6mt expected by the trade.
The trade keeps a close eye on the US drought spreading across most of the Plains.
As of March 11, only 12 per cent of the Kansas winter wheat – which accounts for 24 per cent of the national production – was rated Good/Excellent compared to 40 per cent last year and 39.6 per cent on a five-year average. The drought in the US is serious but major importers do not rely on this origin anymore and as such, adverse conditions in Europe and the Black Sea will be required for a long lasting rally in price.
Wheat could still benefit from the support coming from the barley and maize fundamentals. The former continues to benefit from high international demand while the latter has reached a seven-month high on Chicago, amid further reductions in South American crop estimates.
The same story goes on for soybean and, as a result, speculators have been buying a record combined amount of wheat, corn, soy/soymeal over the last six weeks, lending further support to the grain markets.
Despite limited and patchy rains last week, the ongoing dry and hot conditions across Argentina's soybean growing regions remains the key driver of global oilseeds prices.
The crop continues to deteriorate, with 50 per cent now rated either good or excellent condition, down another two points on the week and compared to over 80 per cent for the same time last year. The USDA cut production here by 7mt in their recent report, to 47mt (58mt last year), but some private estimates see the crop closer to 42mt.
European rapeseed prices have fallen about €4/t from week ago levels, weighed by ample supplies and steep declines in US soybean futures. Imports from third countries are very slow and lower prices will do nothing to tempt Canadian or Australian supplies into the EU. Ukraine has all but completed its export program for the season.
In the UK, rapeseed prices continue to track Continental prices lower, adjusted for currency. Achieving £300 ex-farm is an ambitious target in the short-term, although another very cold front originating from Russia is forecast to creep westwards into Europe in late March.
This could have the potential to cause crop damage to immature plants. Romania, Poland and Germany are the most exposed, but all would feel the impact through prices.