What to watch: Friday’s acreage and grain stock numbers may give some market direction
EU grain prices come to life as a heatwave hits.
But the UK looks set to miss extreme heat on the continent.
And global markets are still waiting for concrete data on US corn acres.
Nov-19 LIFFE wheat futures closed on Wednesday, June 26, at £153/tonne, up £1/t on the week.
Wheat markets staged a small rally early this week, driven higher by ongoing concerns for the US corn crop and forecasts for record high June temperatures for much of western Europe.
The UK looks set to miss any of the extreme heat this week, although warm weather would be beneficial for winter wheat crops, with most having seen more than ample rain in recent weeks.
Yield prospects are encouraging and, as a result, we will see a sizeable exportable surplus.
Maintaining quality is essential to help us compete in export markets with milling wheat rather than feed grains. UK prices are yet to establish their competitive edge, but look expensive compared to French prices and those are not attracting any buyers at this stage.
Sterling weakness is currently helping UK wheat prices and political concerns regarding Brexit – for the short-term at least – will not reverse this trend.
On Friday, the USDA will publish its quarterly stocks and acreage report. With a poor export pace, US corn stocks are expected to be heavy and therefore negative for the markets.
However, the corn acres estimates will be keenly watched and may give an insight into how significant crop losses may be.
European winter crops look well-developed and in good condition, but many are concerned about a lack of buying interest. However, with the potential for the heat in Europe to damage spring crops over the coming days and, with the USDA report due on Friday, price volatility in the near future seems likely.
EU grain prices have come to life in recent days in the wake of a heatwave spreading across western Europe, which is set to peak today and tomorrow.
Germany recorded its highest ever June temperature yesterday, while, in France, an all-time record of 45degC could be scored today in the south east region, far from the key producing area.
The impact on winter crops is likely to be limited to the region above the Seine river (north of Paris) with the barley harvest already started while wheat is well-developed to cope with a short-lived hot spell.
According to German traders, the current hot episode would be positive for the quality of the harvest. The 2019 EU wheat crop is likely to be a good one both in terms of yield and quality.
The situation is similar in the Black Sea, where the impact of the recent dry spell is still at the centre of the debate, although the first Russian wheat yields have come off at or above last year’s level, with quality reported to be excellent.
The latter element is important to bear in mind, because Russia will likely reach new markets this year, like Algeria or Saudi Arabia, historically two very large importers of EU wheat.
Global markets are still waiting for concrete data around US corn acres. This Friday’s acreage and grain stock numbers may give some market direction, but if not, the next USDA report is not until July 11.
Market moves at this time of the year need feeding with facts and weather uncertainties matched with early harvest yields and quality reports need qualifying before traders are prepared to anticipate a change in market direction.
One uncertainty that is gathering pace is the demand for global animal feed.
The ability or desire for end consumers to change their diets along with the ability to rebuild global livestock numbers after recent disease outbreaks could ultimately affect cereal and oilseed demand in many countries in the coming season.
Global buyers will remain on their toes trying to second guess where they may get this year’s supply from, while also taking into account recent hostilities in some shipping lanes. Only time will tell, but flexibility as a buyer may be the best way forward this year.
Trade expectations for Friday’s US soyabean stocks and acreage reports vary wildly, with the final yield a function of the US summer weather and how a later-planted crop develops.
Recent support for US beans, due to the slowest planting pace since 2013, was consolidated by this week’s initial crop ratings reported at the third lowest on record.
However, an improved weather outlook, talk of a big stock number and comments coming out of Washington that would apparently kill any hope of a trade deal with China in the near term have helped keep further market rallies in check.
South American premiums have been static over the past week, although soyabean prices firmed as the hopes of a US/China trade deal weakened. However, Chinese buying interest remains low, and both Paraguayan and Argentinian supplies are cheaper than Brazil.
MATIF rapeseed traded lower, despite concerns that the current heatwave across Europe would stress crops, while Canadian canola weakened on an improving weather outlook, and a further Canada/China trading issue, this time on meat supplies.
Asian markets remain weak, with beans hitting an eight-week low, meal a five-week low, and palm oil trading at contract lows. News that Chinese crush margins were also trading at a negative added to the bearish sentiment.
In summary, the trade now waits until Friday, expecting a bearish US bean stock report, but broadly similar area figure to that released in March.