What to watch: Markets wait on the impact of European rain
The Brexit extension should ensure the UK has sufficient supplies until the end of the marketing season.
Attention turns to 2019 crop outlook and global oilseed values were under pressure.
Nov 19 LIFFE wheat futures closed on Thursday, April 25, at £146.1/tonne, a fall of £1.90/t on the week.
The agreed extension to the Brexit process to the end of October will allow the UK to export and import grains with the EU at zero tariff.
This should ensure the UK has sufficient supplies until the end of the current marketing season and, with new crop French wheat trading into the UK for late July/early August, thereby places a ceiling on domestic prices.
Domestic demand continues to wane as more competitive feed grains such as maize undermine wheat usage. Maize imports for the current season reached almost 2 million tonnes up to the end of February, with shipments likely to continue until cheaper new crop domestic wheat is available.
UK new crop prices are feeling the pressure from falling global markets, as expectations of a sharp rebound in global production weighs on values.
Weather remains one unknown, although after a dry spring so far, it has to be hoped the forecast for much-needed rain proves to be accurate.
While many of us enjoyed the warm Easter weekend weather, both winter and spring crops were looking very thirsty as the British Isles broke temperature records.
However, with rain now forecast and the weather pattern changing both here and in much of Western Europe, wheat futures markets started the working week with a bump lower.
Concerns that the prolonged dry warm spell could impact on yields eased in line with prices for both old and new crop, and bearish sentiment looks likely to hang over the market – at least for the short-term.
How much rain we get in the UK and how beneficial it will be for crops remains to be seen.
Will some of the driest areas of Europe - Eastern Germany, Poland and the Black Sea - see rain also? If not, concerns will creep back into the markets and add support to prices.
Wheat crop conditions in France slipped two points on the week to April 18, to 81 per cent good to excellent, although this was still three points up on the same time last year.
The EU wheat export pace continues to improve and reached 16.5mt at the end of last week, compared to 16.8mt at the same time last year.
It is highly likely now that export targets, which are seen 1mt below last year, will be met and the EU will end the season with strategic stocks some 4mt lower than they started the year with.
With the 2018/19 marketing season coming to an end, attention is now turning to the improving 2019 crop outlook although harvest is still far away.
As expected, US winter wheat conditions have continued to improve in recent weeks, with soil moisture in the Central Plains much higher than normal and as such, yield potential remains good, not to say excellent, with 62 per cent of the national crop rated ‘Good/Excellent’ ie +31 per cent on last year, +18 per cent on the five-year average and its best since 2012.
However, the ongoing excessive rainfall across the Midwest means that crop conditions in the eastern corn belt are much below average and spring plantings keep being delayed. As of the end of last week, only 6 per cent of the US corn was planted against 12 per cent between 2014-2018 and operators continue to talk about a well overestimated 92.8Mac forecast from the USDA.
However, it did not prevent new crop Dec-19 CBOT corn from scoring fresh contract lows over the last three sessions with historically 70 per cent of the US corn being planted between the last week of April and mid-May and very good yields in South America.
For now and until threat materialises in yield loss, speculators are still comfortable in building record short positions on US grains.
Global oilseed values are under pressure, most notably US soybean futures, which have now shed nearly 5 per cent in the last fortnight on prospects for huge domestic ending stocks, uncertainty over global demand and a benign weather outlook, all amid strong competition from recently harvested South American supplies.
Much of the price pressure witnessed in recent weeks stems from China. Here, attempts to control the ongoing African swine fever epidemic have dramatically reduced the domestic pig herd, with officials estimating more than 1m pigs have been slaughtered, leading to reduced demand for both grains and protein (oilseed meals).
Since anything to do with China nowadays is ‘big’, so the ramifications on global agricultural markets can be significant. Added to this issue is the uncertainty over the ongoing US-China trade war, which, while is reportedly nearing the final negotiation stage, remains a negative for traders.
Then to rapeseed/canola; the trade spat with China and Canada over the extradition of a senior executive from Huawei, a big Chinese telecoms company, to the US remains a barrier for China to import Canadian canola.
In turn, these canola supplies may well be redirected to Europe, where demand for crushing remains very strong as crush margins favour rapeseed over other oilseeds. On paper, Canadian canola works into the EU, although no vessels have been reported yet.
Against this negative backdrop, MATIF rapeseed futures have added £9.50/t from lows set in early March. Good effort!
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