What to watch: Record-breaking European temperatures could hit French spring crops
Another high value season for organic cereals seems unlikely with expectations of a good harvest.
The outlook for UK grain continues to look uncertain as the new Prime Minister pledges again to leave the EU on October 31 ‘no ifs, no buts’.
And there are reports of mixed rapeseed yields as markets continue to rise.
Nov-19 LIFFE wheat futures closed on Wednesday, July 24, at £147/tonne, a fall of £1/t on the week.
The organic grain market is slow to form this season with little forward trade being undertaken. Expectations of a good harvest means buyers are relaxed about taking cover and so are staying out of the market seeking to see discounts to last season’s high values.
Most crops are looking well, and very early reports of winter barley yield are encouraging.
With oats being the largest crop by area in the UK for the first time and good reports of both winter and spring crops, last year’s highs for milling oats will not be repeated.
The wheat area fell again and so both feed wheat and milling wheat buyers will need large volumes of imports and liquidity in the wheat market may be challenging once imported business has been done.
Imported feed wheat has traded in the mid-£290s delivered and ex farm values are being quoted by Saxon as a result of this at £260, with feed oats a further £10 discount to this value.
Continental supply is good with acreage increasing across most of Europe (and beyond) and good yields being reported.
France has seen the largest increase in acreage and inconversion wheat in France has reportedly traded at values of about £230 ex farm. Milling wheat values in France once again look attractive and the potential for export remains.
As the market forms over the next few weeks, prices will become clearer but the expectations for farmers of another high value season seem unlikely and ex farm cereal values are going to start with a '2' rather than a '3'.
A hard Brexit will have a significant impact as exporters will see their business significantly reduced overnight as UK certification needs to apply for third country equivalence.
The approach taken by the UK Government to imports from current third countries will be critical for the UK cereal market as it may impact the supply of imports. As will the approach taken by importers who may seek to hold larger stocks to prevent supply shocks while import regulations are revised.
Ex farm price expectations: Feed wheat £265 - £275, Feed Barley, £260 - £270, Feed oats £255 - £265, Milling Wheat £305 - £315, Malting Barley £295 - £305, Milling Oats £280 - £290
As the UK harvest commences, the outlook for UK grains remains complex.
Wheat prices, helped by a weaker sterling, are now competitive to some export markets. This has resulted in some recent trade, mainly to the Irish Republic.
Harvests are more advanced in other EU countries, so usual UK shipping destinations are utilising new crop supplies rather than imports.
Imported maize and new crop barley continue to undermine wheat usage in the UK. This, plus recent signs of long-holders trying to offload supplies into an increasingly shrinking market, has weakened the old crop price and eroded the old/new crop premium. Most areas have traded available old crop supplies at or below new crop values.
As mentioned earlier, the recent weakness in sterling, mainly linked to a potential no-deal Brexit, has provided price support at the farmgate, but leaves the long-term view far from clear.
The Prime Minister has stated the UK will leave the EU on the October 31, 2019, come what may, with or without a deal. This stance provides marketing uncertainties, not only for growers, but for the whole UK grain trade.
The 2019 wheat and barley harvests are in full swing across Europe with - so far - limited impact from the June’s heatwave in the western part of the continent.
The French wheat harvest progress is approaching 50 per cent and a 39 million tonne crop is now being discussed with ‘exceptional’ yields reported above the Seine river.
The European Commission pegged this year’s EU soft wheat average yield above 6t per hectare or 7.3 per cent higher than last year and 1.6 per cent above the five-year average. The bloc’s (soft) wheat production is set to rebound by more than 10mt from last year’s devastated harvest and as such, a higher exportable surplus needs to find demand.
However, with fierce competition from the Black Sea - Ukraine and Romania in particular - the 2019/20 marketing season is off to a sluggish start, with EU wheat exports totalling less than 600,000t, i.e. 27 per cent behind the five-year average and the lowest in eight years.
The record-breaking temperatures seen in France will be highly detrimental to spring crops, such as sunflower or maize which has now entered its critical flowering period, and resulted in record EU maize imports of more than 1.2mt since July 1 or +556,000t vs last year.
The French maize ratings are expected to decline for a fourth consecutive week and with irreversible yield damage, the 2019 harvest could be the lowest since 1990.
After record delayed plantings due to historical floods, the difficult growing season for US corn continues, with dryness posing new risks to vulnerable crops in parts of the Midwest. As of the end of last week, 57 per cent of the crop was rated ‘Good/Excellent’, down 15 per cent on last year and 14 per cent on the five-year average.
However, in the key states of the Midwest, the conditions are much worse and with only 35 per cent of the US corn crop silking against 78 per cent last year and 66 per cent on average, maturity may not be reached before the arrival of the first frost in the northern states.
However, CBOT corn prices have now declined more than 8 per cent from the highs scored in June with a good harvest in Brazil and a record crop expected in Ukraine. Additionally, the weak currencies in both Brazil and Argentina against the US dollar will incentive local producers to expand acreage.
For wheat, the trade keeps a close eye on Russia where the wheat harvest is now forecasted between 72-75mt vs 76-78mt just a few weeks ago. That said, the Black Sea is still - for now - in a ‘monopoly’ situation when it comes to selling wheat to the largest purchaser in the world, Egypt.
The European rapeseed market continues the bullish trend this week due to tightness of supply. This is also the case in the UK, where crushers are buyers of late July and early August rapeseed as harvest progresses across the country.
While many growers experienced varied establishment and growing conditions following last summer’s drought and some impact from cabbage stem flea beetle, some regions have remained unaffected by these challenges. As a result, early yield reports are mixed at present, although there are indications that some growers who feared the worst have been pleasantly surprised.
The true picture will become clearer as the crop enters the stores and, as harvest continues, there will be a keen focus on the forecasted weather for the coming days.
Following the announcement that Boris Johnson was to be the UK’s new Prime Minister, we saw sterling firm mid-week.
At present, the crude oil market is unstable due to Middle Eastern tensions while the US/China trade conflict continues, with little resolution in sight that doesn’t involve significant tariffs. In particular, the US is threatening further tariffs on $325 billion of China exports.