What to watch: The market was watching what support will be offered to US farmers amid trade tensions
US weather has taken centre stage in global markets
Prices in the EU and UK recovered on the back of US weather conditions, despite more favourable growing conditions
US-China tensions continue to dominate the oilseeds markets
Nov 19 LIFFE wheat futures closed on Wednesday, May 22, at £148.55, a rise of £4.30/tonne on the week
Today marks the last trading day for May London futures and, over the last few weeks, we have seen a large volume of futures tendered right the way from Edinburgh to Kent.
As such, the added weight of physical grain has pushed prices about £10 lower since the start of the month. Consumers are well aware of this and are therefore in no rush to cover late-season slots, possibly compounded by the fact there is still a large discount from old to new crop prices.
New crop markets have been a lot more volatile over the last week, fuelled mainly by weather in the USA. Last Monday, markets were still digesting a bearish USDA which pushed global futures markets to fresh contract lows.
Since then, markets have reversed sharply in line with disappointing US spring corn planting data. It was reported by the National Agricultural Statistics Service that corn planting was at 49 per cent versus a five-year average of 80 per cent, due to widespread rainfall inhibiting land work.
The window for drilling spring crop is narrowing and this corn story was enough to trigger a round of buying across all agricultural commodities. Despite much more favourable growing conditions throughout the EU, wheat prices in the UK followed suit and November LIFFE futures traded £11 firmer to highs of £150.50 yesterday.
This is proof that global prices are sensitive to weather stories but, given the overall bearish global sentiment, growers should be aiming to sell into any rallies that present themselves short term.
In the wake of a weather-driven rally in the US, Euronext wheat has been trading in a wide €7/tonne range since last Wednesday, testing a seven-week high of €181.75/t on the December-19 contract.
The rally seems, for now, to have paused amid improving conditions since the beginning of the month.
In its May crop monitoring report, the European Commission noted that ‘substantial improvements to the yield outlook for winter cereals in southern Europe were largely offset by reduced yield forecast in northern regions, resulting in a slight upward revision at the EU level’.
As such, the 2019 EU soft wheat yield estimate was raised from 6.01t/hectare in April to 6.05t/ha, up 7.6 per cent on last year and up 1.9 per cent on the five-year average. If realised, the 2019 EU soft wheat production could be in the region of 140-145 million tonnes compared to last year’s crop failure of less than 130mt.
From a trade perspective, the pace of the 2018/19 EU wheat exports is still adequate for reaching at least last year’s level of about 21mt while maize imports will set a new record of more than 23mt compared to just 17.7mt last year.
The last week saw US weather take centre stage. The consistent rain across large parts of the US coupled with the short fund position in US futures markets pushed many global markets higher.
The rally stalled slightly when a leaked report suggested various levels of farmer support would be offered to US farmers to compensate for current low prices largely created by the trade talks and the strength of the US dollar.
The problem remains that nothing is certain – crop size, quality or compensation and, globally, traders are constantly running various worst-case/best-case scenarios.
The first USDA balance sheets published earlier this month would imply that globally commodities are unlikely to be in short supply, even with the current US weather but, as always, the focus is on price and this is directly related to individual countries' grain balance sheets.
Buyers will be nervous until plantings are concluded and harvest starts but there is likely to be much volatility as we move through the next six weeks.
Funds are reported to have covered a large percentage of their US market shorts but are likely to be cautious as to the next move until they see aid package details and more planting/condition data.
Ongoing uncertainty over the US-China trade talks and a bearish USDA outlook pushed soyabean futures to an 11-year low earlier in the month, before firmer South American cash premiums and planting delays in the US provided support.
The near 60c/bushel rise was then halted on the news that the US administration was preparing to announce a new aid package said to be in excess of $15 billion for farmers hurt by the trade war with China.
The thinking is the $2/bushel support payment for soyabeans will encourage farmers to do whatever they can to the crop in the ground, and may entice some corn stragglers to switch into soyabeans.
With South American harvests in progress, the need for the US and China to agree a deal is starting to mount. Unless that happens, Chicago prices may well retrace further and retest contract lows seen earlier in the month.
Rapeseed values surged on the firmer Chicago soyabean market, helped by reports of lower-than-expected European crops and a firmer dollar, although it then dipped as the US market turned.
UK prices have also been supported as sterling slipped on continued Brexit unease.