What to watch: Global markets were waiting on Thursday’s USDA report
Defra’s first estimates for UK wheat and barley production came as no surprise to the market.
EU wheat has reached a fresh two-month high on the back of new tenders from major importers, deteriorating conditions in North America and a weak euro. And global oilseed values have firmed on the back of adverse weather.
May-20 LIFFE wheat futures closed on Wednesday, October 8, at £145.25/tonne, a rise of £1.75/t on the week.
On Tuesday, Defra released its first estimate for 2019 UK wheat and barley production.
Wheat is put at 16.283 million tonnes, which is a 20.1 per cent increase year on year, while barley is at 8.180mt, a 25.6 per cent increase year on year. At this figure, it is also the largest barley crop this century.
The impact of these significant numbers was largely unnoticed by the market, with Brexit continuing to dominate the newswires this week. However, the large production has been a contributory factor to the market falling £17/tonne since harvest, despite the recent bounce.
The fast pace of UK exports is helping to clear the UK surplus but much more will be required after the Brexit deadline.
On Tuesday, sterling fell heavily, pushing UK markets up by £1/t.
In the wake of a new round of tenders from major grain importing countries, deteriorating harvest conditions in North America and a weak euro, Dec-19 Euronext wheat is set to post a fifth consecutive week of gains, its best performance since the summer of 2018.
The renewed optimism over EU wheat exports was confirmed by FranceAgriMer which raised its 2019/20 French soft wheat export forecast to non-EU countries to 11.7mt from 11.0mt last month. If realised, it would be a steep 14 per cent increase on last year but due to its second largest crop on record of nearly 40mt produced this year, the French wheat stocks would still jump more than 30 per cent from the 2018/19 season.
The much needed strong exports would imply the EU prices would be capped at least in the short-term in order to remain competitive against the Black Sea.
But on Tuesday Egypt’s GASC purchased only Russian (180,000t) and Ukrainian (115,000t) origins with the French too expensive when freight cost was considered.
Winter grain plantings are now well underway in Europe and the Black Sea, where soil moisture has greatly improved in the last two weeks except in Spain.
Global grain markets are yet again stuck waiting on news.
Focus is on Thursday's USDA report and the cold weather system that is currently heading towards the key US corn and soya states and also late harvested wheat, all of which adds an element of uncertainty. The report should see the US update its corn and soya production estimates, while the weather can only affect these estimates even more.
The US corn crop is still very immature for the time of year – the last time it was close to this immaturity level was 2009 and, as such, a cold weather event could have a reasonable impact on final yields.
Whereas US crops could shrink there are many expecting the October report to show larger crops in the Black Sea and EU, but many also remain nervous over Southern Hemisphere crop prospects.
In conclusion, the markets remain nervous while also trying to digest the potential impact of the new US ethanol policy and the never-ending China / US trade talks.
There certainly is never a dull moment, but while buyers see a fundamentally larger wheat crop globally, they need to be wise to any demand moving between commodities/grades and be ready to react.
US soybeans have firmed, supported by sharp gains in soymeal amid concerns over adverse weather conditions delaying maturity and harvest of this year’s crop.
South American meal has also made gains on the back of the Chicago market, although beans have not seen the same volatility. Concerns remain over dry weather, although weather maps do suggest rainfall into southern Brazil and Argentina.
Canada’s canola harvest remains well behind normal at only 37 per cent complete. Much of the growing area is experiencing snow and sub-zero temperatures.
MATIF prices continue to strengthen and are close to contract highs as concerns mount over EU as well as Canada’s crops.
Asian markets continue to extend recent gains, due to firmer Chicago markets and weakness in the Yuan. In addition, India’s monsoon started later this year but remains significantly stronger than normal, causing flooding, and continues to show a two-to three-week shift from the normal seasonal pattern.
UK farm prices continued to be supported by these firmer global markets, as well as a weaker sterling, mainly linked to the prospects of a no-deal Brexit as the October 31 deadline approaches.
In summary, USDA’s report later this week will adjust numbers to reflect the lower-than-envisaged US stocks reported last month.
However, the trade will focus upon any change in the US’s planted and harvested area, yield and final production, as poor weather delays the US harvest.