What to watch: The Ensus plant will reopen at the beginning of March
In UK markets, domestic supply and demand remained an uncertain situation
Weather events were needed to catch the attention of global markets, with markets reeling on lacklustre demand
And OSR prices have dropped back £20/tonne over the past fortnight
May 19 LIFFE wheat futures closed on Wednesday, February 27, at £164.25/t, a fall of £0.10/t on the week
UK wheat markets have been pulled around trying to justify why they should follow other global futures markets lower.
Domestic supply and demand situations remain very uncertain mainly due to lack of clarity around the original area of wheat planted and harvested back in autumn.
The conflict in data could mean the market is in for more volatility in coming months, especially when added to the continued lack of information around Brexit and how to trade in the face of a hard Brexit.
A smaller wheat crop and a potential issue with exports could prove toxic but conversely ‘stand on business as usual’ could still have its unexpected issues.
This week has seen a re-tender of over 300 futures wheat warrants but no more originals and with zero open interest the March contract looks played out.
Activity continues with May futures contracts rolled to Nov but with the latest news that Ensus is coming back on stream and London futures wheat now more expensive than French for old crop it would be wise to keep a close eye on domestic physical markets and milling premiums rather than just focusing on futures screens, especially with harvest still some 5-6 months away.
A few days of sunshine and the market seems to think it is summer already.
Since breaking its €200 technical support, Matif wheat has remained under pressure amid sluggish exports which stand about 17 per cent, or more than 2.2 million tonnes behind last year’s pace.
The recent dip in price has definitely improved the competitiveness of the EU origins and led major importing countries to step in as per the most recent French ports line-up.
New rumours - for some - have once again emerged from Russia where the government could restrict grain exports with an estimated 5mt of wheat left to export by the end of June against about 13mt last season.
Bullish on paper, the news has been in the market for a few months now whilst the end of the season is just around the corner.
Looking ahead, spring has already arrived and farmers make the most of it before a period of unsettled conditions with beneficial rain forecast in Europe and the Black Sea over the next two weeks, alleviating drought stress.
That said more moisture will be needed during spring to deliver a needed bumper crop.
The winter has been benign with limited winter kill leaving crops with good potential, although vegetation indices, which are little correlated at this stage to final yields, remain below average for this time of the year.
Markets have been reeling over the past month, pressured by lacklustre demand.
Despite ongoing optimism relating to Chinese trade talks, US prices have fallen $20/t over the past month as the sluggish pace of exports continues.
USDA’s recent winter wheat sowing estimate was down 4 per cent on the year but in line with trade expectations.
However, the current shipping rate, down 8 per cent on the year against an expected 11 per cent increase, has the trade resigned to the likelihood of increased ending stocks.
European prices have followed, down €16 in just two weeks.
While key importers’ harvests are only a few months away, there will still be a handful of international tenders to squabble over, although with US, EU and Russian export projections all looking heavy, price recovery looks tough.
Support may come if wheat is incorporated into any Chinese trade deal, but it may need one, or a few, major weather issues to grab the market’s attention.
Much colder weather is forecast to enter most of the US growing areas, and with limited snow cover, a degree of winterkill may occur.
European weather remains favourable, although recent crop losses have been as a result of harvest weather-issues, rather than winterkill, and Australia is potentially facing its third drought-hit season in a row with the current dryness expecting to continue into June, two months after planting begins.
Prices of OSR have fallen nearly £20/t over the past two weeks, as EU values come under pressure and the strengthening pound weighs on domestic prices.
Spot prices now trade at around £300/t in the East of England.
Seasonally warm conditions are contributing to lower demand for rapeseed oil based biodiesel as well as the prospect of increased imports of Argentine biodiesel, with supplies from the US also leading to increased competition from soy-oil based biodiesel, this will likely remain the trend through to the end of the season.
For new crop, it remains the case that there is a significant reduction in area across the EU and condition look set to remain dry in Eastern Australia for the next 6 months according to forecasters MDA.