What to watch: The weather was frustrating European farmers looking to drill spring crops
LIFFE wheat prices consolidate in line with global prices and a recovery in Sterling.
Market premiums built up through drought in the US have fallen as rains fell.
And oilseed prices come under pressure as rains arrive in Argentina.
Nov 18 LIFFE wheat futures closed on Wednesday March 21 at £142.5/t, a fall of £2.80/t on the week
After reaching a 4-month high of £146/t last Thursday, UK wheat futures were in ‘consolidation mode’ this week, in line with global prices and emphasised by a sharp recovery in the Sterling.
Brexit negotiations have apparently made ‘good progress’ with the UK and the EU reaching a transition agreement deal, agreeing on an Irish border compromise and a transition phase set to last until the end of 2020.
Consequently, the Sterling climbed to its highest in 5 weeks against the US Dollar, whilst it gained 2.3 per cent against the single currency over the last 10 days through to Tuesday 20th March, this was its best 10-day performance in nearly 6 months and adding further pressure to UK export prices.
However, it is important to note that physical wheat prices have remained more resilient, with the average ex-farm UK feed wheat price standing at its highest since the end of July 2017.
Although winter crops for the 2018 harvest look good, the downside to UK feedstuff prices remains somewhat limited in the weeks ahead with farmers continuing to struggle with spring planting, which is particularly concerning for the barley area as time ticks on.
Forecasts indicate further cold and showery conditions, at least for the next two weeks.
The EU markets are currently stuck in a very uncertain position. The weather continues to frustrate many EU farmers in the northern regions as they try and find a break in the cold and wet to drill spring crops and also apply inputs to overwintered crops.
With daylight hours extending crops are keen to get away but temperatures need to pick up for many, and wet cold soils will take some time to come fit for the drill.
Traders are also concerned over the supply and demand numbers. Is there really grain available as shown on paper or has it been consumed domestically?
Only time will tell, and this is the concern for many, do trading houses run the risk or do they leave it for the farmers?
If other global supply lines run dry or if the Argentinean corn crop continues to shrink in volume, then prices may rally and long holders feel the benefits but markets could buckle in the other direction if farmers all come to sell just to find consumers well covered.
The uncertainty will keep markets volatile and inter commodity price relationships and domestic markets are likely to be the ones to watch for the next move.
Talk of rain entering the US plains switched the global wheat markets into negative mode prior to last weekend, only to fall further on Monday as a major rain event swept through the US Midwest and into the southern plains over the weekend.
Although decent rains fell in most areas, the western parts of the region (Kansas, Oklahoma and Texas) saw limited precipitation, although this was deemed of little significance to the market, which shed 40c/bushel ($11/t) over three trading sessions.
Market premiums, built up due to ongoing drought concerns over the past weeks, have now been eroded, despite state crop ratings released by the US Government still showing the US winter wheat crop in a perilous condition, with rating at a historical low level, and considerable lower than a year ago
EU MATIF prices followed the declines in the US, although not one-for-one, as falls were limited by ongoing rises in Russian export prices, due to seasonal logistics and continued strong demand from shippers.
Despite Russian wheat exports being projected at a record high level, inventories are projected to rise to over 20mt, while in the EU, it is the slow pace of EU soft wheat exports (down 22 per cent year on year), which will also leave inventories rising sharply year on year.
Oilseed prices have come under pressure over the last week. The main supportive story recently has been the Argentine drought but there has now been rain added to the forecast which has removed some of the weather related support from oilseed markets.
With the weather concerns easing, markets have returned their attention to the heavy stock situation.
World production of palm oil is likely to reach 70 million tonnes in 2018, ten million tonnes higher than in 2016 and three million tonnes than in 2017. Because of these ample stocks, vegetable oil markets have struggled to find any traction.
The value of vegetable oil is one of the most important factors in the price of rapeseed – given the high oil content within rapeseed it derives most of its value from oil.
Tariffs on Argentine SME (biodiesel) were lowered earlier in the season which encouraged a much higher flow of biodiesel into Europe and remaining tariffs are likely to be lowered again. This has been another bearish factor for the rapeseed market this season and it leaves Europe awash with biodiesel and rapeseed oil.
The next window for any potential weather concerns will be May when the weather and planting intentions become clearer for North American soybean crops.