What to watch: The USDA’s initial World Agricultural Production report for 2019-20 is due this Friday
Uncertainty about weather and the size of UK crops is leaving the markets struggling for direction.
Global markets slide as expectations of a large 2019 wheat crop build.
European markets dance to the tune of the US.
Nov 19 LIFFE wheat futures closed on Wednesday, May 8, at £144.50, a fall of £1.50/t on the week.
The UK markets are really struggling for direction. The uncertainty around weather has not helped but continued lack of clarity of just how big the UK crops were or were not this year, coupled with some very dry soils, has left everyone nervous.
Imported grain prices are not that exciting and apart from continued maize imports for ethanol and limited livestock demand, the ports are generally left moving UK wheat to UK destinations. The odd cargo of barley has also been noted but again buyers are few and far between and with new crop Black Sea available in July, it leaves limited time for any notable price movement in any commodity.
Consumers have tended to trade hand to mouth all year and it looks like this is how it will be until new crop, but there could be a few exciting weeks of activity left to come.
The May futures are also at a stand-off. The bid offer spread has been large for a while and again with stores being emptied daily it does raise the question as to how the open interest gets closed out and at what price between now and May 25.
European grain futures markets continued to gyrate to the tune of the key US markets last week and the sentiment held within. Across the pond, focus of attention is mainly concerned with two completely different elements; one based on fundamentals, the other more geo-political in nature.
On the fundamentals, both the spring wheat and corn plantings are significantly behind schedule, due to overly-wet, earlier conditions. The forecast is for more immediate rains, followed by a drier slot where seedings should play catch-up. If they don’t in the weeks ahead, then the massive spec shorts in Chicago will need to reassess their positions.
The more influential feature, however, is the ongoing trade spat between the US and China.
Monsieur Trump, I bet he does not like that moniker, appears to be gambling the farm with his latest hard-nosed stance with the Chinese in the negotiations, while his key agricultural supporters in the rural parts of the US are, to say the least, struggling financially.
Some argue that, despite reports of 95 per cent agreement between the two sides, any deal may not now happen until just before next year’s presidential elections. In the meantime, this is a big, fat negative for US/EU/world grain/oilseeds prices.
ODA’s eastern European clients maintain their stance that, while weather conditions have been far more conducive of late to stable cereals and oilseeds plant growth, the damage due to earlier dryness has already been done, tillers have been dropped and yield forecasts have to take this into account.
The market, however, remains focused on the US. For how much longer remains to be seen, but ‘sub-optimal’ is a word that is being more and more used to describe production potential across vast swathes of Europe.
Although the current wet weather has delayed US spring crop sowings it has enhanced the winter wheat crop, with crop ratings well up on the year.
The EU and Black Sea regions have seen improving weather outlooks, which also support expectations of a sharp rebound in production for 2019, as has talk of larger crops in Brazil, Argentina and Canada, mainly as a result of larger areas.
As a result, new crop wheat prices have moved downwards to fresh contract lows.
Supporting the recent slide were comments coming out of the US-China trade talks. Due to a lack of progress, President Trump again raised the threat of imposing import tariffs, due to be implemented this Friday.
This sent the whole grain complex into sell mode, pushing prices lower, before some signs of stability returned to the markets.
USDA’s initial World Agricultural Production report for 2019-20 is also due this Friday. This is expected to forecast big crops for all the major commodities.
Beyond this, it is all about weather with problems in the US and Canada but better prospects for the EU and Black Sea regions.
For the near future at least it looks as though prices will to continue to trade at or near recent lows.
After months of negotiations, the White House said that China has indicated it wants to make a deal with the US soon with a new round of talks resuming yesterday. However, the rhetoric of US President Donald Trump is very different as he would be 'very happy with over $100 billion a year in tariffs filling US coffers - great for the US, not good for China!'
Consequently, the oilseeds sector took another blow this week as Trump’s tweets are anything but conducive to a trade agreement.
Tomorrow, the US is set to raise tariffs on $200bn worth of Chinese goods to 25 per cent from 10 per cent while the USDA will publish its monthly WASDE report in which South America soya production estimates could be raised and the first forecasts for the 2019/20 season will be released.
So far, the lack of agreement has been particularly damaging for soyabean which has lost more than 20 per cent over the last 12 months but this has of course weighed on wider oilseeds markets including that of OSR.
However, Europe’s rapeseed crop remains under threat, and with plantings at about 15 per cent lower than a year ago, estimates are finally heading towards CRM Agri’s forecast of 18 million tonnes of production.
If realised, it would be a 13-year low and increase EU rapeseed import demands.
European rapeseed will have to maintain a strong premium over canola to facilitate the pace of imports through the 2019/20 season. Additionally, with China now crushing less due to the culling of 20 per cent of its pig herd due to African Swine Fever, there will be an oil shortage and therefore other veg oils will need to act as replacement.
This will lead to increased demand for veg oils this season and mean that likely Ukrainian supplies which were imported to Europe at record levels this year will be redirected towards Asian markets.
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